Supply Chain Constraints Cloud Dolby's Core Audio Outlook
Dolby CEO Kevin Yeaman forecast a low-single-digit decrease for the company’s foundational audio revenue in fiscal 2022, citing analysts’ reports indicating “we will not see the level of market growth we saw in the previous year,” due to uncertainties about global supply constraints and consumer spending.
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On a Tuesday earnings call, Yeaman classified foundational audio -- which grew 11% year on year in Q4 fiscal 2021 and generated three-quarters of fiscal 2021 licensing revenue -- as Dolby Digital Plus, AC-4 and the company’s audio patent licensing. The foundational technologies have “high attach rates across a diverse set of devices and end markets,” he said. Long term, foundational audio licensing revenue will reflect market trends and device shipments across many devices and markets with opportunities to boost adoption in areas such as mobile and automotive, he said.
During fiscal 2021, ended Sept. 24, revenue benefited from “robust increases” in consumer device shipments and increased adoption of Dolby Atmos and Dolby Vision, which Yeaman referred to as growth areas, advancing 35% in fiscal ’21. Management sees accelerating growth of Atmos and Vision in fiscal ‘22 and a partial recovery in cinema related revenue, offset by a “macro slowdown in consumer device shipments.”
The company is “building momentum” for live broadcast events in Dolby, Yeaman said. Comcast delivered the 2021 World Series and playoff games in Dolby Vision on Fox Sports; Thursday Night Football games will be available in Dolby Vision through Fox; and NBC will deliver select college football games in Vision, he said.
Dolby is forecasting low single-digit growth in broadcast revenue, driven by adoption of Dolby Vision, Dolby Atmos and imaging patent licensing, offset by lower foundational audio revenue. He noted analyst projections of “flat- to down” TV shipments next year. The Dolby Vision attach rate on 4K TVs, which are 60% of the TV market, is 20%-25%, Yeaman estimated, up from 10% in 2019. Attach rates for Atmos are “catching up to that number pretty quickly,” he said.
Dolby Vision growth will come from mobile, PC and other uses “outside of the Apple ecosystem,” where the company has traction, Yeaman said. It’s still in early stages of adoption in the PC market, adding Xiaomi last quarter, he noted.
In Dolby’s emerging automotive business, Mercedes-Benz announced in the September quarter it will offer Dolby Atmos in the Mercedes-Maybach and Mercedes-Benz S-Class models. Dolby is following previous strategies of starting with higher end models before making Atmos “broadly available across all ways in which people enjoy music.” Average selling prices in automotive are "quite a bit higher than the average,” he said.
In its fledgling Dolby.io developer application programming interface platform, Dolby is targeting virtual live performances, online and hybrid events, social audio, premium education, gaming and content production, said Yeaman. Each of the vertical markets is a “hundreds of billions” of annual minutes opportunity worth “$5 billion and growing,” he said.
A Dolby.io platform update last quarter enables higher quality capture, processing and playback capabilities than what’s available on the market, Yeaman said, which makes its APIs more competitive. The company continues to introduce new APIs and features that address developers’ needs and improve their experience, he said.
Responding to a question on Dolby’s role in the metaverse, Yeaman cited Dolby.io as a likely venue. Some Dolby.io developers “define themselves as virtual environments and maybe, by extension, the metaverse,” he said. The opportunity for virtual audiovisual experiences in the metaverse spans company segments, he said.
Fiscal Q4 revenue was $285 million, vs $271.2 million in the year-ago quarter, said the company, below Colliers’ expectations, analyst Steven Frankel wrote investors Wednesday. Noting supply chain issues are “outside the company's control,” Frankel said the biggest “lever” to the business over the next few quarters is “anything that can remove some supply chain pressures,” including raw materials and logistics. Colliers hopes Dolby will scale the API business in fiscal ’22.
Dolby's fiscal '22 outlook is for revenue of $1.34 billion-$1.4 billion vs. $1.28 billion in fiscal '21. Shares hit a 52-week low Wednesday at $85.24 before closing 1.5% down at $87.61