Dolby Laboratories Inc (DLB) 2008 Q1 法說會逐字稿

Welcome to the Dolby Laboratories conference call discussing fiscal first quarter 2008 results. During the presentation all participants will be in a listen-only mode. Afterwards you will be invited to participate in a question and answer session. (Operator instructions). As a reminder this call is being recorded Thursday, January 31st of 2008. I'd now like to turn the conference call over to Kevin Yeaman, Chief Financial Officer for Dolby Laboratories. Please go ahead, Mr. Yeaman.

Thank you, Operator. Good afternoon, everyone and welcome to Dolby Laboratories first quarter fiscal 2008 earnings conference call. Joining me today is Bill Jasper, Dolby Laboratories President and CEO. In addition, Tim Partridge, EVP of Products and Technology, Ramzi Haidamus, EVP of Sales and Marketing and Marty Jaffe, EVP of Business Affairs are here to participate in today's Q&A.

On this conference call we will be making forward looking statements that include projections of future operating results for our fiscal year ending September 26th, 2008. Market trends for the industries in which we compete and our expectations concerning how those trends will affect our operating results, the capabilities and market acceptance of our products and technologies and our strategic and operational plans as well as our expectations regarding the anticipated benefits of our recent acquisition of Coding Technologies.

Important factors could cause actual results to differ materially from those in the forward looking statements. These factors are detailed under the section captioned risk factors and elsewhere in our most recent annual report on Form 10K and any subsequently filed quarterly reports on Form 10Q available at www.sec.gov or on our website at www.Dolby.com under the investor relations section. Dolby disclaims any obligation to update information contained in these forward looking statements, whether as a result of new information, future events or otherwise. As for the structure of today's call, Bill will begin with an overview of the business and I will follow with a rundown of Dolby's financial results.

So, with that introduction behind us, I will now turn the call over to Bill.

Thank you, Kevin. Good afternoon, everybody. I'm pleased to report a strong start to fiscal 2008 with first quarter revenue increasing 44% year over year. During the quarter, we continued to benefit from the inclusion of Dolby technologies and entertainment platforms such as DVD, PC, broadcast, cinema, gaming and automotive while remaining well positioned for key upgrade cycles in next generation DVD, next generation gaming, digital cinema and digital 3D. With this strong base our focus is on increasing the adoption of Dolby technologies and investing in new opportunities for long term growth.

On today's call I would like to discuss the progress we are making on both these fronts. In our PC market, we continue to benefit from the inclusion of Dolby technologies and widely used software. Many PCs continue to ship with Microsoft Vista Home Premium or Ultimate editions as well as with third party DVD playback software, each containing Dolby technology. In addition, we've made solid progress with our PC entertainment experience initiative. Through this initiative Dolby is working with PC manufacturers to incorporate Dolby technologies on the PC firmware for a more immersive audio experience from all sources; streaming, downloadable or DVD.

Recently, Lenovo announced that Dolby home theater would be included across its entire line of Idea Pad consumer notebooks. This announcement joins previous ones from Acer, which has included Dolby home theater in its Aspire line of notebooks and from Toshiba which has included Dolby home theater or Dolby sound room across its satellite line of notebooks. Within the PC market notebook computers are gaining share on desktops. Notebooks can offer comparable processing power to desktops with the added benefit of portability, which consumers increasingly want. We believe the trend to notebook computing benefits Dolby in several ways. First, since notebooks tend to command a higher price point than desktops, in our experience OEM's are more willing to include premium technologies in them. Second, consumers are increasingly using their notebooks as portable media players and are therefore seeking more media centric features.

Turning our broadcast market, Dolby continues to make progress growing the adoption of Dolby Digital and Dolby Digital Plus. In addition to Dolby Digital being the mandated audio standard for digital television in North America and Korea, Dolby Digital Plus has been incorporated into a number of European television shipments by leading television manufacturers helping to increase our penetration of the world wide TV market. In the digital set top box category Dolby Digital remains the de facto audio standard for the North American cable industry. In addition, Voodoo, a new downloadable service has incorporated Dolby Digital Plus into its instant access set top box.

In our consumer electronics market, we believe we remain well positioned across the DVD, AVR and camcorder categories. In next generation DVD Dolby technologies are mandated in both Blue Ray and HD DVD and price points for both formats continue to decline. The supply of high definition movie titles is also growing with over 400 titles offered in either Blue Ray or HD DVD to date.

In the AV receiver and camcorder categories newer Dolby technologies are being adopted. A number of new AV receivers are incorporating Dolby True HD and Dolby Digital Plus while certain HD camcorder models from Sony and Panasonic offer Dolby Digital Creator enabling consumers to make home movies in Dolby 5.1. In addition to driving additional technologies across our existing markets, we are investing in new opportunities such as mobile, imaging and Dolby Volume for long term growth. We continue to position ourselves in mobile. We announced the release of the Dolby Mobile Suite of technologies in November which integrates and optimizes a number of technologies for the playback of entertainment on mobile phones. Sharp has licensed Dolby mobile into two handset models for the Japanese market.

Through the acquisition of Coding Technologies, we have expanded our presence across the mobile handset market with the AAC Plus audio codec in over 100 handset models. In imaging, we continue to make solid progress through our rollout of 3D digital systems and our development of high dynamic range technologies. In October, we began shipping Dolby 3D digital systems across 12 countries in conjunction with the release of Beowulf in 3D. And in January the world premiere of U2 in Dolby 3D was shown at the Sundance Film Festival to wide acclaim. Dolby's 3D technology utilizes standard white screens already in auditoriums, so exhibitors don't have the added cost nor the image quality compromise associated with the use of silver screens required by competitors. Additionally, Dolby's 3D digital system supports both 3D and 2D presentations without the need for dedicated 3D auditoriums. Exhibitors can move a 3D movie to additional auditoriums equipped with Dolby 3D digital cinema systems later in the run using the standard screens. This is an important benefit since exhibitors need to migrate a feature film to a smaller screen as it matures and as new features are prioritized for the main theaters.

While Dolby Digital cinema and Dolby 3D represent our first push in the imaging, we are equally focused on improving the video of next generation LCD displays. At this year's consumer electronics show, we demonstrated the capabilities of Dolby's high dynamic range technologies which provide dramatically enhanced contract with extended brightness and dynamic range for LCD televisions with LED backlighting technology resulting in truer blacks, brighter whites and a vivid image. Another technology that we believe is well suited for the television market is Dolby Volume. Late last year the market's first IC with Dolby Volume was approved. At this year's CES we demonstrated Dolby Volume in a prototype AV receiver by Onkyo as well as a prototype television unit from Syntax Brillian.

In summary, we believe we are well positioned in many markets and are focused on driving long term growth through the adoption of additional Dolby technologies and through the investment in new opportunities such as mobile, imaging and Dolby Volume. With that, I'll hand it over to Kevin.

Thank you, Bill. I'd like to start by discussing Dolby's overall financial performance followed by highlighting some of the major drivers of our P&L in the first quarter of 2008 and I'll finish by providing our guidance for fiscal 2008.

Revenue for the first quarter was $150 million, up 44% year over year and 16% sequentially. First quarter licensing revenue was $122 million, an increase of 49% year over year and 19% sequentially. Growth was primarily driven by strong results from our PC market as well as from our broadcast consumer electronics and gaming markets. In the first quarter, our PC market doubled year over year driven primarily by shipments of PCs with Microsoft Home, Premium or Ultimate editions and/or third party DVD playback software each containing Dolby technology. Licensing revenue from our PC market grew approximately 20% sequentially in the first quarter of 2008, which we attribute to increased PC shipments and the continued strength of Microsoft Vista. Additionally, we saw strength in our PC entertainment experience included in entertainment oriented PCs.

Our broadcast market experienced strong year over year growth and sequential growth on demand for set top boxes and digital televisions containing our technologies. We also benefited from an increase in television attach rate in both North America and Europe. Our CE market experienced single digit growth year over year and sequentially. Our other markets category grew led by growth and our gaming market and the addition of our mobile market through our acquisition of Coding Technologies.

First quarter product sales were $20 million, up 32% year over year and 2% sequentially. Product sales growth both on a year over year and sequential basis was driven primarily by sales of our recently introduced 3D products. First quarter services revenue was $7.8 million, an increase of 14% year over year and 28% sequentially. The year over year increase was driven by growth in services on original films. The sequential increase resulted largely from seasonality as our fourth fiscal quarter is typically a slow one for film releases.

Turning to gross margins, our licensing gross margin was 97% in the first quarter, down slightly sequentially. Our licensing margin decreased by one percentage point sequentially due to amortization of acquired intangible assets from the Coding Technologies acquisition in November of 2007. We expect our licensing margin to be approximately 96% for the full fiscal year 2008 due to amortization of Coding Technologies intangibles for all the remaining quarters.

Our product gross margin was 42% in the first quarter of fiscal 2008, a decline of seven points sequentially. The decline in gross margin is primarily due to the increase in sales of our 3D glasses, which have lower margins than our traditional cinema and broadcast products. We have deferred approximately $10 million in revenue to date for Dolby Digital Cinema Systems until certain DCI specifications are clarified and met. We continue to expect to recognize this revenue in the second half of fiscal 2008. Since gross margins on additional digital cinema systems are significantly lower than our traditional cinema products, product margins could fall as low as 25% in the quarter we recognize the deferred digital cinema revenue. Services gross margin was 61%, up eight points sequentially resulting from the higher revenue in the first quarter.

Operating expenses were $65 million in the first quarter of fiscal 2008, up 3% sequentially. Operating expenses increased primarily due to increased personnel expenses from the addition of new employees, particularly through the acquisition of Coding Technologies.

Interest income was slightly lower year over year and down 16% sequentially due to the lower cash balance following the acquisition of Coding Technologies. We expect other income to run at a lower rate in the remainder of fiscal 2008 due to the expenditure for Coding Technologies and lower interest rates following Federal Reserve rate cuts.

Turning to tax, our tax rate for the first quarter of fiscal 2008 was 34% and we continue to expect our tax rate for the year to be approximately 35%. Fiscal first quarter net income was $47.7 million or $0.42 per diluted share compared to $29.9 million or $0.27 per diluted share for the first quarter of fiscal 2007.

Net income reflects stock based compensation charges of $5.5 million for the first quarter of fiscal 2008 and $4.9 million for the first quarter of fiscal 2007. Net income also reflects charges related to the amortization of intangibles of $2.3 million for the first quarter of fiscal 2008 compared to $0.5 million for the first quarter of fiscal 2007.

Turning to the balance sheet, Dolby finished the quarter with approximately $510 million in cash and marketable securities. We used approximately $250 million to acquire Coding Technologies during the quarter. This use was partially offset by cash flows from operations of approximately $76 million driven primarily by net income along with an increase in current liabilities. The acquisition of Coding Technologies resulted in the addition of approximately $59 million in acquired intangible assets and approximately $215 million of goodwill. Additionally, upon the acquisition we created a deferred tax liability of approximately $17 million, which is reflected in non current liabilities.

Let me turn to outlining our expectations for fiscal 2008. For licensing, we now expect revenue of between $470 million and $495 million in fiscal 2008 as we have increased our expectations for the PC market. For products and services, we continue to anticipate revenue of between $105 million and $120 million. The anticipated shift in the market toward digital cinema makes this a difficult category to predict. We continue to base our guidance on the assumption that we will have increased sales of digital cinema and 3D products and that we begin recognizing revenue from digital cinema sales in the second half of fiscal 2008.

In summary, we now expect fiscal 2008 revenue to be approximately $575 million to $615 million. We now expect GAAP net income from fiscal 2008 to be approximately $157 million to $167 million and earnings per diluted share to be approximately $1.34 to $1.44. We now expect stock based compensation expense for the full year to be approximately $19 million to $21 million.

While we are still in the process of completing our purchase price valuation as it relates to our acquisition of Coding Technologies and the numbers could change, we are basing our guidance on approximately $12 million in amortization of intangibles in fiscal 2008.

This concludes our prepared remarks. I would now like to turn it over to the Operator for questions. Please go ahead, Operator.

Thank you. (Operator instructions). Our first question comes from the line of Brian Thackray with Deutsche Bank. Please go ahead.

Hi. Thanks, guys. Good quarter. Has anything changed with regards to your guidance? I know you have higher expectations on the PC side and historically you just roll your out performance into your full year guidance. But has anything else changed given some of the macro economic conditions out there? Are you seeing any weakness in any of your other markets?

We have not. To date we haven't seen weakness in any of our other markets. All of our markets have been quite strong, but as we look throughout 2008 we are, of course, very aware of all of the talk and reporting about potential macroeconomic concerns. And so as you probably know, we formulated our guidance by speaking with industry analysts, with customers, with partners; really the entire ecosystem and we use that as a starting point for our guidance and we think that we're conservative in our assessment of the information we get from them. That's the basis on which we form our guidance.

So, as we look across each of our markets, I think we also take into consideration the fact that we have a number of growth drivers that are not particularly tied to unit volume growth, particularly in broadcast and PC where we're expecting most of our growth. So, in both of those markets, we're expecting an increased attach rates and in PC we're increasingly confident that the incidents of third party DVD players being included when a PC is sold with Vista continuing through the end of the fiscal year and we continue to have very good success with our PC entertainment experience initiative which has the effect of increasing the content in the PC.

On a broadcast base, the North America attach rate has gone up since the mandate in March of 2007 last year for all TV's that ship with tuners to ship with digital tuners. And in Europe, as Bill mentioned in the script, we now have more than one manufacturer shipping TVs into Europe with Dolby Digital Plus and that increases our attach rate. So, that's kind of how we looked at it as we approached it this quarter.

I guess as you look at your licensing revenue line, it grew 49% year over year. Is there a way to quantify how much of that came from increased units year over year versus increased attach rates in terms of technology attach rates?

We haven't quantified it that specifically. We did say that PC was the biggest driver and that revenue from our PC market doubled year over year. While unit growth was a factor, the much bigger factor was attach rate in the particular -- the Microsoft Vista, which did not - we didn't have that in the comparable quarter a year ago. In broadcast, it's a function of both unit growth and increased attach rate. Both are significant factors. In CE, its been less about unit growth particularly in DVD as the mainstay in that category and more about a little bit of increase in prices, some additional technologies included in categories such as the camcorder category.

Okay. Thanks guys.

On the product side as we mentioned the 3D -- revenue from 3D products began to kick in this quarter.

That's helpful. Thanks, guys.

Thank you. Our next question comes in the line of Ralph Schackart with William Blair. Please go ahead.

Good afternoon. I was wondering if you can maybe give us a little bit more color on the Coding acquisition; maybe high level, how's integration going? How are discussions with customers going? And maybe a little bit longer term. You talked about at CES the opportunity to layer on top some of the Dolby technology, Bill, that you talked about in the script with your existing Coding customer base?

Let me just at a high level - the integration has been seamless. We're very pleased. We've got a great group of people, some great technologies on board and we expect the company to be fully integrated to our Dolby German and Dolby Sweden offices and to be part of our mobile and broadcast markets. I should point out that in terms of the first quarter there wasn't a lot of revenue from the acquisition just because of the timing of the closure. Most of their statements came in before we actually acquired them. Kevin?

From a financial perspective that's true. I think the integration is going well from our perspective and we continue to be pleased with it.

Does that help, Ralph?

It does Bill. Maybe just a little bit more if you could. Have you reached out -- maybe it's Ramzi -- to the customer base just to think about how we could on a go forward basis starts include some more Dolby technologies on top of their core Coding technology?

That is indeed the plan. As we mentioned before, the initial step of course was to contact all of Coding Technologies customers as well as Dolby's customers, both of which were affected in one way or another. The response has been very positive overall. And, of course, the next question is now what? We have been architecting our product roadmaps on a segment by segment basis. The HEAC technology which we inherited from Coding Technologies does play different roles in different segments, so we're on our way to come up with these product road maps and they will be launched according to plan in the different settings over the course of the year -- in the different normal settings such as our trade shows.

More specifically, HEAC along with some of the Dolby post processing technology does become a very powerful combination of technologies and that has always been our plan moving forward. In terms of specific product launch, we haven't announced anything yet given that the acquisition really didn't complete that long ago. Overall, I would repeat what Bill said. We are on track vis a vie people integration as well as technology and product integration.

Great. That was really helpful, Ramzi. One more quick one if I could before I turn it over. The high level -- maybe Kevin, can you sort of comment on the DVD player end market? I know you said CE end market was up single digit. Is DVD end market sort of holding steady in between product cycles here?

It's pretty much holding up the way we expected so far. Of course, we're talking about September quarter shipments. We don't - we're not counting on any big -- any significant contribution for Next Gen DVD in our fiscal '08, which as you know would have to ship by June to be in our fiscal '08. And on our annual guidance, we're not really counting on growth in DVD shipments. In fact, we have them a little bit down in our guidance assumption, but we have revenue going up on ASP's and inclusion of technologies in categories such as the camcorder.

Great. Thanks guys. Another great quarter.

Thank you. Our next question is from the line of Ingrid Chung with Goldman Sachs. Please go ahead.

Thank you. Good afternoon. My question is about PCs. I was wondering if you could give us an idea of the magnitude of the licensing fee for a bundle like Sound Room or home theater versus the third party ISV licensing fee and versus Vista? And then secondly on PCs also, how receptive are HP and Dell to these bundled technologies?

We haven't broken down the ASP for that, Ingrid, but we are pleased with the additional contribution. It is a factor in the guidance and the performance this quarter. In terms of the receptiveness, I'll turn to Ramzi for receptiveness, but the reception we've had by our customers - I don't know if have any comments on specific customers?

Overall we have been very pleased with the response to the PC entertainment experience as we showed at our CES booth with increased line of products. We obviously continue to engage with potential new customers. Historically, we have not commented on any of our customer's plans until those customers announce their own products. We tend to be at the back end of those announcements out of respect for confidentiality and planning of our customers. But overall, we continue to be very pleased with the response of the PC technology adoption.

Okay. Great. Thanks. And then in terms of the ultra portable market is there any way that you can sell into that market also for PCs?

I don't see why not as long as the horsepower is there from a CPU perspective. There's nothing - and of course there are two small speakers on such an ultra portable or a head phones out. There's always some form of the PC entertainment that can be installed on an ultra portable as long as there's some form of audio out either by a headphone jack or two small speakers.

Okay. Great. Thank you.

Thank you. Our next question comes from Mike Olson with Piper Jaffray. Please go ahead.

Thanks. Just a quick question about Dolby Volume. When do you think that could turn into something that's more of a material contributor? I know it's early on for that. Is it more of an '09 event versus '08?

There is nothing significant in our guidance for '08. I'll let Ramzi talk about the progress from a market perspective.

This is clearly one of the classic Dolby technology plays more of a long term where the initial launch has been - or the initial effort has been very much coupled with the integrated circuit manufacturers and that's definitely an area where we've had good progress working on the reduction of the footprint of the Dolby Volume routines. And as we've shown in SES, we have a couple of prototypes there showing initial progress in market response. So, I would look to '09 in terms of both certified IC's as well as product on the marketplace.

Okay. And then one just quick question about broadcast revenue. Can you give us kind of the latest update on the DCI spec?

To be clear, you're asking about digital cinema revenue, right?

Yes, sorry. Digital cinema.

That's okay. Tim, do you want to address that?

Yes, Mike, there's been some good progress on the DCI spec. As we spoke last time, we were waiting for some specifications to be standard to be published by SMPTE, the film standards body, in December and they did get published. So, we are now actively working to implement that particular standard. DCI does continue to make some refinements, so we have to say that there are still some things a little bit out of our control. So, we'll wait in anticipation to hope that that doesn't happen too much, but also going forward we will be looking for a third party certification authority which the industry is moving toward.

Again, that's out of our control, but it's something that we would look for to help us to recognize these revenues. But overall, things are progressing well and we do expect to recognize those revenues if things go to plan as Kevin said towards the second half of the year. It's approximately $10 million.

Okay. And then just one last one. Sorry to make you repeat this, but I missed part of the call. You said PC was up double year over year. Is that right? What was it sequentially?

We said that it was up about 20% sequentially.

Okay. And then did you say what broadcast was up?

Not specifically we didn't, no.

Okay. Thank you.

Thank you. Our next question comes from the line of Stephen Frankel with Canaccord Adams. Please go ahead.

Good afternoon. I just wanted to dig into your forecast a little more. You talked about your DVD assumption. What kind of assumption are you making in digital television for year over year growth?

You know, in digital television, our growth is more driven by attach rate than unit volume growth although there is unit volume growth. It's a little harder to come up with a sound byte for the TV growth because it's sliced a lot of different ways through digital and geographical. So, I don't have a specific number for you on that. But again, we've based it on our interactions with everyone in that ecosystem and think that it's an appropriate number on which to base our guidance.

Okay. Would you care to guess when you believe Next Generation DVD would begin to ramp. It's not in your fiscal year this year, but when do you think is the tipping point?

It continues to be a very difficult one to call out, frankly, and we have stayed on the sidelines waiting for this battle to play out. I hesitate to even guess on when it might play out at this point.

All we can really say, Steve, is that we don't have any -- very, very little revenue in this fiscal year for that.

One point of clarification on the PC software DVD player, is it true that the Vista DVD playback doesn't handle Blue Ray or HD DVD, so you would need a third party player for those drives?

That's a good question. I don't have the answer for that. We can get back to you.

Okay. Great. Thank you.

Thank you. Our next question comes from the line of Andy Hargreaves with Pacific Crest Securities. Please go ahead.

I just want to ask another question about TV. Can you give us any quantification of where you think penetration is in terms of the European market?

So, the question is on TV's again. So, let me just back up. In North America, most of our growth is assumed to come from the increased attach rate. In Europe, it's a combination of TV growth and attach rate and today our best estimate is that we're getting attached to roughly a third of the televisions -- digital televisions in Europe.

And then do you guys have any expectations built in for these analogue to digital converter boxes?

Not for fiscal '08. Our assumption is that that would largely be of fiscal '09 dynamic.

And then can you give us any indication of how big you think that opportunity is?

Well, the opportunity is however many of those converter boxes they sell. It's my understanding that they're targeting something like 40 million, I think I saw.

Okay.

It's 30 or 40 million if that's the exact number, but that's what they're looking at in terms of the rollout prior to the March '09 cutoff of analog transmissions.

There's also the dynamic of those people, which one might choose to get the converter box at that point or which one of them are waiting till the last minute to actually go out and buy digital televisions. That's what makes that market hard to predict.

Is the ASP comparable to what you'd be getting on a TV?

If it's just a Dolby digital television versus a Dolby converter box, the answer is yes.

Okay. Thanks.

Thank you. Our next question is from a line of Daniel Ernst with Hudson Square Research. Please go ahead.

Yes, good evening. Thanks for taking my call. Two questions if I might. First, if you look at the margin impact of the DCI shipment recognitions being potentially -- taking product gross margins down to 25% in that quarter, what would that look like if I spread that recognition out across the quarters once they were shipped rather than having deferred them and recognized them in one single quarter? And then second question, could you update us on the mix of licensing between DVD, PC, broadcast, mobile, other how you're classifying it now and a better sense of the current mix? Thanks.

Sure. So, first of all on the question about the impact of margins, would we recognize the deferred digital cinema revenue? First of all, there's two dynamics that are part of that its all hitting in one quarter, but part of it is a lot of those units were our first units shipped over not just this year but over previous years. And in the early days they were shipping at lower margins. So, that's part of the reason for the impact on margins, other than just that it's all at once. So, I think for the full year we're expecting 35% to 40% margins and I think it's reasonable to think that once we get through this year, we could be in the 40's.

And the second part of your question was the breakdown of licensing revenue. Is that right?

Correct.

So, just for CE we said that last year that was about 35%. It was over 35%, actually. PC was just about 35% and broadcast was over 15%. In our fiscal '08 guidance because we're assuming most of the growth comes from PC and broadcast of those major markets, we would see PC surpassing CE as the largest market and broadcast continuing to gain share as a percentage of our licensing revenue. The other markets which now include mobile should increase quite a lot in fiscal '08 because of the inclusion of most of the revenue from Coding Technologies which is in the mobile space.

You would classify things like camcorders within the CE category?

We do classified camcorders, AVR's, home theater to box systems. Those are some of the things that hit our CE category in addition to DVD players.

Understood. Thanks a lot.

Thank you. Our next question is from Alan Davis with DA Davidson. Please go ahead.

Just one question in regards to the PC business. It looks like you pushed up any expectation that the double dipping on the third party playback software and those royalties. That would get rationalized this year. Is it still your expectation that perhaps in fiscal '09 some of that gets rationalize?

I don't know if maybe Ramzi has some thoughts on '09. Just to confirm, we are increasingly confident that for '08 people will continue to see value in the additional third party DVD player. And that's based on our discussions with people that are in that industry. Beyond that, I don't know. Ramzi, do we have any thoughts on '09 yet?

The trend seems to be that the value add which the ISV's or Independent Software Vendors are adding is valuable enough for both the tier one computer folks to continue to bundle those, even though the Vista package does come with that player. So, whether it's a feature set or the new download to burn model or any of those newly added features which continue to be packed into these ISV software. They're attractive enough where we haven't seen -- just from talking to those ISV's, we haven't seen any trend - downward trend. It's difficult to add color to this because we also don't know if there's going to be any upgrades to the Vista player itself next year, which could make that player more attractive than it is, et cetera. So, overall, I'd say we're fairly confident that this year is going pretty well, versus the trend and we'll wait and see until we see some new product launches and updates towards the end of this year before we can comment on the quarters beyond this fiscal year.

Great. Good. Thank you.

Thank you. (Operator instruction). We do have a follow up question from the line of Andy Hargreaves with Pacific Crest Securities. Please go ahead.

Thanks for taking my question again. Just wondering if you can give us a little more granularity as we get towards the back half of this year. You talked about it a little bit, but can these embedded technologies on the PC side, the mother board stuff, be pretty significant in terms of revenue or is that more of an '09 type of event?

Are you referring to the PC entertainment experience?

Yes.

That is a piece of our revenue this year in '08, yes.

Okay. Any relative quantification you can give us?

We haven't broken that out separately. No.

Okay. Thanks.

It did begin to contribute this quarter and we see it being a factor in the year over year growth in the second half.

Great. Thanks.

Thank you. At this time there are no additional audio questions. I'd like to turn the call back over to Mr. Bill Jasper for any closing remarks.

Okay. Thank you, Operator. Thank you all for listening in to our first quarter fiscal '08 earnings call. We appreciate your attention. We appreciate the excellent questions and we look forward to speaking with you in three months' time. Thank you.

Ladies and gentlemen, this does conclude the Dolby Laboratories, Inc. first quarter 2008 earnings conference call. We thank you for your participation and for using ACT Teleconferencing. You may now disconnect.