Dolby Laboratories (NYSE: DLB) is engaged in the development and delivery of sound processing and noise reduction systems for the entertainment industry. The firm makes its own products and licenses its technology to other manufacturers. It has about 1000 patents and 870 trademarks worldwide. In film, the Dolby Digital format has become an audio standard, being employed in more than 42,000 movie theaters. American engineer and physicist Ray Dolby founded the firm in London in 1965 and moved it to San Francisco in 1977. Sony (NYSE: SNE) is a major competitor.

The company surprised the Street late last month, when it reported fiscal Q1 EPS of 42 cents and revenues of $150.2 million. Analysts had been looking for 32 cents and $134.4 million. Management also guided FY08 EPS to $1.34-$1.44 ($1.37 consensus) and FY08 revenues to $575-$615 million ($588.94M consensus).

When you go to the movies and see that the show you have picked features "Dolby" sound, you know you are in for a treat. Some may think that "Dolby" is a technical term, but it is actually the name of the American physicist who invented the high quality audio technology that has enhanced the entertainment experience for four decades now.

Dolby Laboratories Inc. (NYSE: DLB) is engaged in the development and delivery of sound processing and noise reduction systems for the entertainment industry. The firm makes its own products and licenses its technology to other manufacturers. It has about 950 patents and 850 trademarks worldwide. In film, the Dolby Digital format has become an audio standard, being employed in more than 42,000 movie theaters. Physicist Ray Dolby founded the firm in London in 1965 and moved it to San Francisco in 1977. Sony (NYSE: SNE) is a competitor.

The company surprised the Street earlier in the month, when it reported Q4 EPS of 39 cents and revenues of $129 million. Analysts had been looking for 24 cents and $121.3 million. Management also guided FY08 EPS to $1.27-$1.37 ($1.22 consensus) and FY08 revenues to $560-$600 million ($536.04M consensus). Kaufman Brothers and Ferris Baker Watts subsequently declared the stock a "buy". DLB shares popped on the news and have since settled into a bullish "flag" consolidation pattern. Prices frequently exit flags moving in the same direction they were traveling on entry. In this case, that would be to the upside.

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.