Dolby Rolls Past Quarterly Guidance but Outlook Stays Cautious

Chew stopped short of giving detailed guidance for the second half of the fiscal year but anticipates such revenue to be below the first half due to lower seasonality in consumer device shipments and lower revenue from timing under contracts. Chew “could see” second half revenue in the mid-high $500 million range; he guided to fiscal Q2 revenue of $280 million-$310 million. Since the outbreak of COVID-19, Dolby revenue “continues to be impacted across various markets within licensing and products and services,” said the company's financial release. The implications of COVID-19 on future results “remain uncertain.”

Analyst data continues to project lower total available market data for the second year, year on year, said Chew. That's due to an uptick in shipment volume of certain devices like TVs and PCs from the second half of fiscal 2020 that’s “not projected to repeat" in the same time frame of the current fiscal year.

In its cinema business, “the recovery that people might have been expecting seems to be pushing out,” said Chew, referencing trends for big film titles and screen openings. Other markets were 12% of Q1 licensing, up 8% year on year, driven by new console releases and patent fees; they were offset by “significantly lower” Dolby Cinema box office share due to COVID-19.

Consumer electronics were 14% of licensing in the quarter, up 6% year on year, and PC was 9%, a 3% gain year on year due to adoption of premium technologies including Atmos and Vision. Gains were offset partially by declining average selling prices from the mix of disc versus non-disc units. Products and services revenue fell to $16.9 million vs. $34.2 million the prior-year quarter as “most of this revenue comes from equipment that’s sold to cinema exhibitors, and these customers continue to be negatively impacted by the pandemic,” Chew said. Broadcast revenue increased by about 36% year over year, partially offset by lower market volume in set-top boxes. Mobile accounted for 28% of the quarter’s licensing revenue.

CEO Kevin Yeaman highlighted CES announcements from LG, Panasonic and Sony for its Atmos and Vision TV technologies and by Skyworth, which is adding support for Dolby Vision IQ. Oppo launched its first TVs in the current quarter supporting Vision and Atmos. Yeaman also referenced sound bars incorporating Atmos from LG, JBL and TCL.

HBO Max became the latest major streaming service to support the combined Dolby Vision and Dolby Atmos experience with the release of Wonder Woman 1984, said Yeaman, joining competitors Netflix, Disney+ and Apple TV+. Despite the “challenging” market for Dolby Cinema, 12 new locations opened globally in the current quarter, including the first in Taiwan. The company sees opportunities to build on its “strong presence” in movie and TV content in areas like music and gaming, he said.

In Dolby Voice, online education platform Kiddom adopted Dolby application programming interfaces, including Voice, to improve the quality of communications between teachers and students, it said.

The company is in “early days” with its Dolby.io business to enable creators to develop higher quality audio experiences through application programming interfaces for social media, podcasts, product videos and footage used for news broadcasts, Yeaman said. “We're beginning with the ability to clean up recorded audio.”

In Q&A, Yeaman said the company hopes devices using Dolby Atmos will ultimately support Dolby Atmos Music, saying a big focus is to bring on streaming service partners with Music to create demand for Atmos, specifically for music, on devices "that may not have yet been compelled to have it, including automotive."