Audio company Dolby Laboratories, Inc. (NYSE: DLB) posted good 2Q 2007 earnings. Total revenue was up 23% to $129 million. Net income was $39.1 million, or diluted EPS of $0.34. This is $11 million more than 2Q 2006. As expected, Dolby booked $7.7 million in additional revenue due to the favorable outcome of a contract dispute. Stock-based compensation was down slightly for the quarter to $4.8 million. Given these 2Q numbers, Dolby CEO Bill Jasper forecasts FY revenue in the $435-450 million range, with net income in the $110-115 million range. Diluted EPS would then be in the $0.95-$1.00 range, with stock-based compensation expenses of more than $20 million.

Dolby is trying to expand on two fronts, by entering new markets as well as by introducing new products such as digital TV into existing markets. Dolby is facing a number of pressures. As innovative products come on to the market, Dolby faces pricing pressure on its existing products. It depends on the computer gaming sector for substantial revenues, but there may be problems ascertaining the accuracy of the amount of royalties due and when those are to be paid. Dolby is plagued by the movie pirating industry in China, which deprives the company of royalties owed it. Additionally, Dolby is affected by the general state of the motion picture production industry. Dolby is trying to launch digital camera and audio technology in new markets, but the level of demand for these new products is difficult to gauge with a high degree of accuracy. The company has said it will grow by acquisition if necessary.