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Dolby Laboratories(DLB) - 2021 Q4 - Annual Report

Revenue and Licensing - Licensing revenue accounted for 95% of total revenue for the fiscal year ended September 24, 2021, up from 93% in 2020 and 89% in 2019[22] - The company generates revenue from licensing arrangements with over 500 electronics product OEM and software developer licensees[22] - The broadcast market represented 39% of licensing revenue, while mobile accounted for 22%, and consumer electronics (CE) made up 15% for the fiscal year ended September 24, 2021[25] - Licensing revenue includes recoveries from previous periods, which have become a recurring element of the business and are subject to fluctuation[32] - Dolby Cinema partnerships generate revenue through a share of box office receipts, recognized as licensing revenue[33] - Revenue from licensing businesses is dependent on OEMs and other licensees incorporating technologies into their products, with no minimum purchase commitments[86] - The availability of semiconductor components is critical for licensing revenue, with shortages potentially impacting product demand fulfillment[99] - A small number of licensees or customers may represent a significant percentage of revenue, increasing the risk of revenue decline if key relationships are lost[98] - The company’s revenue growth will depend on success in new and existing markets, including digital broadcast, mobile devices, and online media distribution[114] Technology and Innovation - Dolby's key technologies include Dolby Atmos, which provides an immersive audio experience, and Dolby Vision, which enhances imaging quality with high dynamic range[25] - The company is expanding its addressable market through the launch of its developer platform, Dolby.io, enabling developers to create high-quality, interactive applications[21] - The two-tier licensing model allows semiconductor manufacturers to incorporate Dolby technologies into their products, which are then sold to OEMs[26] - The integrated licensing model combines implementation and system licensing, allowing software vendors to incorporate Dolby technologies into their products[30] - Dolby launched a developer platform, Dolby.io, providing access to technologies through APIs, aimed at expanding content enhancement capabilities[36] - The success of new initiatives like Dolby Atmos and Dolby Vision depends on the availability of products and content in these formats, which is subject to market conditions and competition[118] - The company is transitioning its audio licensing business to newer technologies like DD+ and Dolby AC-4 to maintain revenue streams[126] Financial Performance and Expenses - R&D expenses for fiscal year ended September 24, 2021, were $253.64 million, an increase from $239.05 million in the previous year[50] - Sales and marketing expenses for the fiscal year ended September 24, 2021, were $332.67 million, slightly down from $335.93 million in the previous year[54] - COVID-19 has adversely impacted operations and financial performance, leading to disruptions in supply chains and delays in product launches[80] - The cinema market continues to be affected by COVID-19, resulting in significant reductions in box office receipts and lower demand for cinema products and services[81] - The company faces challenges in having its technologies adopted as industry standards, which may limit its licensing practices and revenue potential[106] - The company has experienced issues with inaccurate royalty reporting from licensees, which may lead to fluctuations in operating results and revenue recognition[110] Market and Economic Conditions - Economic conditions, including those influenced by COVID-19, may suppress consumer demand for discretionary goods that incorporate Dolby's technologies[100] - The shift from optical disc media to streaming services has resulted in decreased royalty revenue, particularly affecting sales of devices with optical disc drives[88] - Revenue from the PC market relies on unit shipment growth and the inclusion of technologies in computers, which may be impacted by COVID-19[93] - Dolby Cinema revenue is tied to box office receipts and the success of motion pictures, with potential risks from delays in cinematic releases and reduced operating capacity due to COVID-19[96] - The company is dependent on international sales for a substantial amount of total revenue, facing risks related to trade restrictions and tariffs[155] Intellectual Property and Legal Risks - The company faces ongoing intellectual property litigation risks, which could divert management resources and lead to significant costs[128] - The company has contractual indemnifications with licensees regarding IP rights and may defend them against third-party claims[129] - The company faces challenges in enforcing patent rights in foreign jurisdictions, particularly in countries with limited IP protections[132] - Unauthorized use of the company's intellectual property, particularly in emerging economies, poses a significant risk to revenue and market share[127] - As of September 24, 2021, Dolby held approximately 15,500 issued patents and 4,000 pending patent applications globally[39] Corporate Governance and Shareholder Matters - The Dolby family and their affiliates owned 36,012,733 shares of Class B common stock, representing 99.8% of the voting power of Class B shares as of September 24, 2021[170] - The stock repurchase program may reduce the public float of shares available for trading, and future repurchases are subject to market conditions and other factors[174] - The company has a quarterly cash dividend program initiated in October 2014, with annual increases approved by the Board of Directors, but future dividends are not guaranteed[175] - The company has a dividend policy that may be changed or canceled at the discretion of the Board of Directors[197] Employee and Community Engagement - Dolby employs 2,368 individuals globally, with a focus on employee well-being and diversity initiatives[62] - The company has established programs to support diversity and inclusion, enhancing employee engagement and community impact[68] - The company has a competitive compensation package to attract and retain employees, including cash and equity compensation[179] Operational Risks and Supply Chain - The company relies on key suppliers for materials and components, which poses risks related to price control, delivery, and quality[133] - Sole source suppliers for critical components may lead to production delays and increased costs if they fail to deliver[134] - The company relies significantly on a global network of independent distributors for marketing and distribution, which may affect future sales if distributors do not adhere to compliance policies[101] Real Estate and Assets - The company owns its principal corporate office in San Francisco, California, and additional properties in various states and internationally[185] - The lease for the corporate office at 100 Potrero Avenue, San Francisco, expires on October 31, 2024, providing approximately 70,000 square feet of space[187] - The company has a minority ownership interest of 49.0% in Dolby Properties Burbank, LLC, located in Burbank, California[186]