Dolby Shares Jump 13% on Apple 'Endorsement' in iOS 9.3
Apple’s adoption of Dolby Digital Plus “should kick start the [Dolby] Mobile business,” which was down 2 percent year-over-year in Q2, said Dougherty & Co. analyst Steven Frankel in a research note Thursday. Frankel sees “ample room for upside” in its estimates for FY 2017 and beyond, calling the new kinship between the companies an “important evolution in the long-standing relationship.” Dolby shares closed 13 percent higher Thursday at $47.91.
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Dougherty expects streaming video providers including Netflix to update their apps with the Dolby decoder “and deliver a premium audio experience while using less bandwidth,” Frankel said. Frankel also suggested Apple’s move could “push Samsung back to Dolby.”
Dolby CEO Kevin Yeaman called Apple's adoption of Dolby Digital Plus in iOS 9.3 a "good endorsement," on the company's FY 2016 Q2 earnings webcast Wednesday. “Everybody takes notice when Apple places importance on something," Yeaman said in Q&A when asked if Apple’s stamp of approval would lead to other OEM adoptions. The Apple endorsement will also help grow the Dolby ecosystem, and the company has developer programs in place on the content side, said Yeaman.
Mobile continues to be a key growth area for Dolby, and is expected to account for 20 percent of licensing revenue in Q3, said Chief Financial Officer Lewis Chew. Yeaman noted that Google Play now streams Dolby audio to Android-based TVs. LG, HTC, BQ, Obi and Lenovo currently ship handsets and tablets with Dolby audio.
Yeaman cited LG and Vizio TV announcements for Dolby Vision HDR and “increasing momentum” on the content side, including Netflix’s announcement that it will have 150 hours of original content available in Dolby Vision by year end, and Amazon’s commitment to stream content in Dolby Vision. Vudu is currently streaming 30 titles in Dolby Vision, he said, and more than 100 Dolby Vision titles for the home are expected by the end of the year.
On the potential for consumer confusion with Dolby Vision and other versions of HDR, Yeaman sidestepped the question in Q&A, saying the company developed Dolby Vision over a number of years to be “robust” from content creation to playback and “mastered to the highest quality” of HDR capability. Dolby is confident in the “quality and the comprehensiveness of our solution,” he said. He also noted that Dolby is a member of the Ultra HD Alliance and that Dolby’s implementation of HDR supports Dolby Vision along with “other ways of receiving HDR content.” The goal is to “make it easy for display providers to make a decision to go forward with Dolby Vision and not have to worry about whether there are going to be other ways of getting HDR as well,” he said.
Earnings results within Dolby divisions: Broadcast represented about 45 percent of the $249 million total licensing revenue in Q2, up 10 percent year over year, on higher back payments and higher set-top box revenue, said Chew. PCs were 16 percent of total licensing roughly flat with the year ago quarter, while market volume was down, he said. CE represented 14 percent of licensing volume, down 7 percent on lower AVR, Blu-ray and DVD player volume that was offset by higher volume in digital media players and soundbars, Chew said. Product and services revenue was $25 million in Q2, down from $28.6 million in the year-ago quarter, he said. Total revenue was $274.3 million vs. $271.9 million in Q2 2015.