It might not be a slam dunk, but we already know Dolby Labs
You telling me some java-sippin' Joe at Starbucks
Now hear this!
Dolby's fortunes are tied to a number of technologies, but it has been most closely associated with the DVD player. In fact, DVD player sales have for a long time accounted for half of its licensing revenues, probably just as long as people have been predicting its demise. Time and again, though, the three-time Motley Fool Stock Advisor recommendation has put the prognosticators to shame, surpassing analyst expectations by about 35% on average.
It faces nominal competition from DTS
- Next-gen DVD players
It was a short but bloody fight to see Blu-ray DVD emerge victorious. Dolby, as would have been the case had HD-DVD won, is the industry standard here. Prices for the next-generation DVD player are falling, making the decision to upgrade easier. As more movies are shot in the format, expect to see the players sell more. It's been a concern that falling DVD sales will hurt Dolby's bottom line, but Blu-ray player sales should eventually ease those concerns.
A recent downgrade by an analyst sent Dolby investors into a tizzy as shares fell on the news. The analyst's concern was slowing PC sales for the second half of the year. I think those worries are overblown. Laptops, where most computer sales occur these days, grew 41% in the fourth quarter of 2007, according to the market researchers at DisplaySearch. Analysts at IDC foresee annual growth above 10% even in 2012. Seems pretty robust even in a dour economic climate.
With more and more of Dolby's sales tied to the Vista operating system from Microsoft
- Hi-def TVs
Dolby got a boost when new TV tuners were mandated for inclusion last year, and it will get another when all broadcast TV signals will become digital starting in February. With Dolby again the industry standard and included in both the new tuners and new TVs, and as more people upgrade their home theater systems to the latest models, Dolby will get a cut of those revenues.
- Digital cinema
Speaking of cinema, digital movie systems are rolling out in ever greater numbers of theaters here in the U.S. as well as internationally, thanks to Access Integrated Technologies
These four areas are Dolby's playground. It has been and will continue to be the industry leader. If there's one stock you must buy, Dolby should make the short list of any March Madness contender.
Agree? Then head on over to Motley Fool CAPS and give Dolby a venti thumbs-up over the warmed-over cup of mocha joe Starbucks.
Dolby and Starbucks are Stock Advisor picks. Starbucks is also an Inside Value selection along with Microsoft. The Motley Fool owns stock in Starbucks.
Fool contributor Rich Duprey owns shares of Dolby, but does not have a financial position in any other stocks mentioned in this article. You can see his holdings here. The Motley Fool has a disclosure policy.