02.08.2010 06:00 PM
Dolby Beats the Street
One-third of revenues attributed to broadcasting

Audio specialist Dolby Labs turned in fiscal first-quarter results exceeding analyst expectations. The company reported revenues of $221.2 million, up 23 percent from a year ago. F1Q10 net income was $69.1 million, or 59 cents a share, compared to $78.1 million, or 68 cents a share the year earlier. Around 8 percent of the revenue growth was attributed to an accounting change.

“Dolby Laboratories posted strong first-quarter results, and we are maintaining our fair value estimate,” Morningstar’s Michael Holt said. “About $20 million remains on the balance sheet, which should provide a minor boost to revenue over the next few quarters. Profitability remains outstanding, with a gross margin of 84 percent and operating margin of 47 percent for the quarter.”

Holt said broadcast technology accounted for about one-third of Dolby’s revenues.

“We continue to be impressed by Dolby’s success in becoming the audio standard for digital television around the globe. Management said attach rates are now above 80 percent for Europe, and Dolby stands to gain as more countries transition from analog to digital broadcasting,” Holt said. “In contrast, consumer electronics have dropped to just 24 percent of revenue. More affordable price points should create positive momentum for Blu-ray adoption. However, we expect the tail wind of 15 million to 20 million units to be offset by diminishing DVD sales and forecast a net neutral impact to the firm.”

Kevin Yeaman, Dolby president and CEO, said global adoption of Dolby Digital Plus had increased in the first quarter, along with demand for its 3D cinema systems. A set-top box manufacturer also adopted Dolby Volume for “certain models” during January, he said.

Dolby is aiming to end fiscal 2010 with $780 million to $810 million in revenue for the full year. Barrington Research is pegging the top a bit higher, at $811 million. The firm upgraded Dolby (NYSE: DLB) to outperform with a target price of $58 a share.

“We feel catalysts that are beginning to develop greater momentum will push Dolby’s numbers for the year to the top of guidance or slightly beyond. We are also increasing our 2011 estimate from a very conservative $2.15 to a much higher, but very achievable, $2.45,” the Barrington note stated.

Shares of Dolby are up more than 7 percent year-to-date around $51.20. -- Deborah D. McAdams

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