Ladies and gentlemen, thank you for stand by. 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. Now I would 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 26, 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-10-K and any subsequently filed quarterly reports on Form 10-Q 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 run down of Dolby's financial results. So with that introduction behind us, I will now turn the call over to Bill. N.W. (Bill) Jasper, Jr. - President, Director, and Chief Executive Officer: Thank you Kevin. Good afternoon everybody. I am pleased to report a strong start to fiscal 2008 with first quarter revenue increasing 44% year-over-year. During the quarter, we…

Thank you Bill. I would 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 will 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 D Series 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 experience, 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 increasing 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 in our gaming market and the addition of our mobile market through our acquisition of Coding Technologies. First quarter products 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…

Thank you. [Operator Instructions]. Your 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. You have higher expectations from the PC side and historically this will -- 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 quiet strong. But as we look throughout 2008, we are of course very aware of all of the talk and reporting about potential macro economic 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 used that as a starting point for our guidance and we think that we were conservative in our assessment of the information we get from the analysts. 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... that are not particularly tied to unit volume growth, particularly in broadcast and PC where we are expecting most of our growth. So in both of those markets, we are expecting increased attach rates and in PC, we are increasingly confident that the incidence 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 should have the effect of increasing the content in the PC. On the 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 TV's in to 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 look at our licensing revenue line, it grew49% 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. And while unit growth was a factor, the much... the bigger factor was attach rate and in 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, the mainstay in that category and more about a little bit of increase in prices, some additional technologies included in categories such as a camcorder category.

Hey thanks.

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 from the line of Ralph Schackart with William Blair. Please go ahead Ralph Schackart - William Blair & Company: Good afternoon. I was wondering if you can maybe give us little bit more color on the Coding acquisition, maybe high level how is the integration going, how are discussions with customers going, and maybe a little bit longer term you talked about CES opportunity to layer on top some of the Dolby technologies, Bill that you talked about in the script with your existing Coding customers base? N.W. (Bill) Jasper, Jr. - President, Director, and Chief Executive Officer: Let me just ... at a very high level, the immigration has been seamless. We were very pleased, we have got a great group of people and 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?

Yes, from a financial perspective, that's true. I think the integration is going well from our perspective and we continue to be pretty pleased with it. N.W. (Bill) Jasper, Jr. - President, Director, and Chief Executive Officer: Does that cover that Ralph. Ralph Schackart - William Blair & Company: It does Bill, maybe just little bit more if you could. Have you reached out, maybe it's Ramzi, the customer base just to think about how we could on a go forward basis start to include some more Dolby technologies on top of their core Coding Technologies.

That is indeed the plan as I 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 effective in one way or another. The response have been very positive overall. And of course the next question is now what and we have been architecting our product road maps on a segment by segment basis. The HEAC technology which we inherited from Coding Technologies does play different roles in different segments. So we are on our way to come up with these product road maps and they will be launched according to plan in different settings over the course of the year in a different... normal setting such as our trade shows. More specifically HEAC along with some of the Dolby post processing technologies 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 we didn't complete that long ago. Overall I would say... I will repeat what Bill said, we are on track vis-à-vis people integration as well technology and product integration. Ralph Schackart - William Blair & Company: Great, that was really helpful Ramzi and one more quick one if I could before turning 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 as DVD end market sort hold them steady and between product cycle shift.

It's pretty much holding up the way we expected so far. I mean of course we are talking about September quarter shipments. We don't... we are not counting on any big, any significant contribution from 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 are 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 ASPs and inclusion of technologies in categories such as the camcorder. Ralph Schackart - William Blair & Company: Great, thanks guys. Another great quarter.

Thank you.

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

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

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

Overall, we have been very pleased with the response to the PC entertainment experience. As we showed with 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. So, we tend to be, as a 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 and option.

Okay great. Thanks, and then in terms of ultra portable market. Is there anyway that you can sell into that market also for PCs?

I don't see why not. As long as the horse power is there from a CPU perspective, there is nothing and of course there are two small speakers on such ultra portable or a headphones out. There is always some form of the PC entertainment that can be installed on an ultra portable, as long as there is 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 the line of Mike Olson with Piper Jaffray. Please go ahead.

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

There's nothing significantly in our guidance for '08. I will let Ramzi talk about the progress from a market perspective. This is clearly one of the classic Dolby technology plays over the 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 an area we've had good progress working on the reduction of the footprint of the Dolby Volume routines. And as we've shown in at CES we have a couple of prototypes there showing initial progress and market response. So, I would look to 09 in terms of both certified ICs as well as product on the marketplace.

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

So, to be clear you are asking about digital cinema revenue, right?

Yes, yes sorry digital cinema.

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

Yes Mike. There has 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 standard 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 refinement, so we have to say that there are still something that are little bit out of our control. So, we'll wait in anticipation to hope 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 towards. Again, that's out of our control but it is something that we would look forward 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, that's approximately $10 million.

Okay, and just one last one. Sorry to make you repeat this during this part of the call. You said PC was up, double year-over-year. Is that right and 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 Steven Frankel with Canaccord Adams. Please go ahead.

Good afternoon. I just want to dig into your forecast a little more. You've talked about your DVD assumption. What kind of assumption are you making in Digital Television for year-over-year growth?

In Digital Televisions it's... 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, in digital and geographical. So, I don't have the specific number for you on that. But again, we 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, if not in your fiscal year this year but when do you think it's a different point? N.W. (Bill) Jasper, Jr. - President, Director, and Chief Executive Officer: 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 and I will hesitate to even guess on when am I play out at this point?

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

And then one point of clarification on the PC software DVD player, is it true that the Vista DVD playback doesn't handle Blu-ray or HD DVD TV, you would need a third party player for those tracks.

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.

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

So the question is on TVs 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 are getting attached to roughly a third of the television... digital televisions in Europe.

And then on... do you some of the expectations built in for the analog-to-digital converter boxes.

Not for fiscal 08 where our assumptions is that that would largely be a fiscal 09 dynamic.

And then, can you give us any indication of how big you think that opportunity is? N.W. (Bill) Jasper, Jr. - President, Director, and Chief Executive Officer: Well, we obviously, opportunity is however many those converter boxes they sell. My understanding is that they are targeting something like a 40 million I think I saw. It's 30 million or 40 million, I will get the exact number but that's what they are looking at in terms of the roll out prior to the March 09 half of analog transmissions.

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

Is the ASP comparable to what you be getting on the CD?

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

Okay, Thanks.

Thank you, our next question is from the line Daniel Ernst with Soleil-Hudson Square Research. Please go ahead.

Yes, good evening, thanks for taking my call. Two questions if I may. First, if you look at the margin impact of the DCI shipping 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 core in which they were shipped rather 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 broadcasts, mobile, other higher... over better sense of the current mix, thanks.

Sure, so first of all on the question about the impact of margins when we recognize the deferred digital cinema revenue. First of all, there is two dynamics that are part of it, is that it is all hitting in 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 early days they were shipping at lower margins. So that's a part of the reason for the impact on margins other than just it is all at once. So I think for the full year, we were 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 40s. And the second part of your question was the breakdown of licensing revenue, is that right?

Correct.

And... so just for CE, we said that last year that was about 35%, that is over 35% actually, PC was just about 35% and broadcast was over 15%. So in our fiscal '08 guidance because we are assuming most of the growth comes from PC and broadcast, those major markets we would see PC surpassing CE as the largest market and broadcast continuing to gain shares, as a percentage of our licensing revenue. On 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 in the... which is in the mobile space.

And we would classify things like camcorders within the C category?

We do classify camcorders, AVRs, Home Theatre, The Box System, those are the some of things that our CE category in addition to DVD players.

Understood. Thank a lot.

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

Yes, just a one question in regards to the PC business and it looks like you pushed out any the expectations that the double dipping on the third party playback software and just those royalties, that will get rationalized this year. So, your expectations that perhaps in fiscal '09, some of that gets rationalized?

I don't know if maybe Ramzi will have some thoughts on '09, I mean 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 you have any thoughts on '09 yet.

The trend seems to be that the value add which the ISV or independent software vendors are adding is valuable enough for both the tier 1 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 and burn model or any of those newly added features that has continued to be packed into these ISV software they are attractive enough, but we haven't seen a... I guess, what I am talking to those ISVs. We haven't seen any trend, downward trend. It's difficult to add color to this because we also don't know if there is going to be an upgrades to the Vista player, it sells next year which could make that player more attractive than it is, etc. So, overall I'd say we are fairly confident that this year is going pretty well versus on this trend and then I'll wait and see until if some new product launches and updates towards the end of this year, before we can comment on the quarters beyond this fiscal year.

Okay. Great, thank you.

Thank you. [Operator Instructions]. 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 could give us a little more granularity. As we get towards the back half of this year, you talked about little bit but can these embedded technologies on the PC side, the motherboard 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. N.W. (Bill) Jasper, Jr. - President, Director, and Chief Executive Officer: That is the piece of our revenue this year in '08. Yes.

Okay. Any relative quantification you can give us?

We haven't broken that out separately now.

Okay. Thanks. N.W. (Bill) Jasper, Jr. - President, Director, and Chief Executive Officer: 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 would like to turn the call back over to Mr. Bill Jasper for any closing remarks. N.W. (Bill) Jasper, Jr. - President, Director, and Chief Executive Officer: Okay, thank you operator. Thank you all for listening in to our first quarter fiscal '08 earnings call. I appreciate your attention, appreciate the excellent questions, and we look forward to speaking with you in three months time. Thank you.

Ladies and gentleman this does conclude the Dolby Laboratories Incorporated first quarter 2008 earnings conference call. We thank you for your participation and for using AT&T teleconferencing. You may now disconnect.