Ladies and gentlemen, thank you for standing by. Welcome to the Dolby Laboratories Conference Call discussing third quarter fiscal 2011 financial results. [Operator Instructions] As a reminder, this call is being recorded Thursday, August 4, 2011. I would now like to turn the conference over to Alex Hughes, Senior Director, Investor Relations for Dolby Laboratories. Please go ahead Mr. Hughes.

Thank you. Good afternoon, and welcome to Dolby Laboratories Third Quarter Fiscal 2011 Earnings Conference Call. Joining me today are Kevin Yeaman, Dolby Laboratories President and CEO; Murray Demo, Executive Vice President and Chief Financial Officer; and Ramzi Haidamus, Executive Vice President of Sales and Marketing. On this conference call, we will be making forward-looking statements that include projections of future operating results for our fiscal year ending September 30, 2011; market trends and developments for the industries in which we compete; and our expectations and beliefs concerning how these trends and developments will affect our operating results; the capabilities and market acceptance of our products and technologies; and our strategic and operational plans and objectives. These statements are based on management's current expectations and assumptions that are subject to risks and uncertainties. Actual results may differ materially from those set forth in such statements. Important factors, such as general economic, PC or cinema market conditions could cause actual results to differ materially from those in the forward-looking statements. These factors are addressed in the earnings press release that we issued today and under the section captioned Risk Factors and elsewhere in our most recent quarterly report 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. During this call, we will discuss GAAP and non-GAAP financial measures. A reconciliation between the 2 is available in our earnings release and in the Dolby Laboratories Investor Relations data sheet on our Investor Relations section of our website. Call participants are advised that the audio of this conference call is being broadcast live over the Internet. It is also being recorded for playback purposes. An archive of the call will be made available on our website for approximately one year and is the property of Dolby. As for the structure of this call, Murray will begin with a recap of Dolby's financial results and provide an updated outlook, and Kevin will finish with the discussion of the business. So with that introduction behind us, I will now turn the call over to Murray.

Thanks, Alex. Good afternoon, and thank you for joining the call. I'd like to discuss Dolby's fiscal third quarter financial performance and our outlook for fiscal 2011. Revenue for the third quarter was $219 million, down 5% year-over-year and 12% sequentially. Licensing revenue for the third quarter was $181.8 million, up 7% year-over-year and down 15% sequentially. Revenue increased year-over-year due to our broadcast in other markets category led by mobile, and declined sequentially primarily due to typical seasonality. Looking at licensing revenue by market for the third quarter of fiscal 2011, PC revenue declined 11% year-over-year primarily due to lower revenue from ISVs. Sequentially, PC revenue declined 9% led by lower revenue from Windows 7 primarily due to seasonality. Broadcast revenue increased 26% year-over-year and declined 14% sequentially. The year-over-year growth resulted from increased revenue from set-top box and TV, and the sequential decline was led by typical seasonality in TV. Revenue from our consumer electronics market increased 5% year-over-year, as increases in certain product categories including audio/video receivers, home-theater-in-a-box and camcorder more than offset declines in DVD. Sequentially, CE revenue declined 15% primarily due to typical seasonality. Revenue from our other markets category, which includes mobile, gaming, automotive and Via increased 26% year-over-year primarily on growth from mobile; and 29% sequentially primarily due to typical seasonality. Third quarter product revenues were $28.4 million, down 46% year-over-year and up 8% sequentially. The year-over-year decline was primarily driven by lower prices for our 3D and Digital Cinema products. In addition, last year, benefited from the recognition of approximately $5 million in deferred revenue from prior period. The sequential increase primarily resulted from higher revenue from 3D. Third quarter Services revenue was $8.8 million, up 21% year-over-year and down 3% sequentially. Turning to margins. GAAP gross margin was 87.2% in the…

Thanks, Murray. Good afternoon, everyone. As we look across the entertainment and consumer electronics landscape, we see a continued proliferation in both the way we receive our content and play it back. Today, consumers can receive content through broadcast, optical disc, online, and mobile, as well as cinema. They can also play back their content on a wider range of devices, including tablets and handsets. Yet the audio experience across these devices and through some of these channels, such as online and mobile, is often inconsistent and degraded. This creates the opportunity to leverage our portfolio of technologies and expertise to deliver a more immersive and consistent audio experience across all of these channels and devices. This will ensure that consumers get the best experience regardless of how they choose to receive their contents. On today's call, I would like to highlight the developments and changes taking place across the different channels of content distribution and discuss how we are positioning Dolby's formats and technologies in each. Starting with the broadcast channel distribution, we continue to see the transition to digital television and high-definition TV taking place globally. In the Asia Pacific region, China finalized its national digital TV standard, which includes Dolby Digital Plus as an optional format. We believe this helps set the stage for the transition to digital television and the adoption of our technologies in China. As with the case in North America and Europe, our inclusion in the Chinese digital TV standard was due in part to our ability to get our format into local content. In China, we've also seen a high percentage of the country's high-definition channels on air using our technologies. In preparation for the transition to digital broadcast, we recently signed agreements with 2 Chinese TV OEMs, TCL and Skyworth. We…

[Operator Instructions] We'll go first to John Vinh with Collins Stewart.

I guess, my first question is on Windows 8. Can you clarify -- do you expect as you transition to Windows 8 is that most of your revenues with Microsoft are going to be at risk? Are there other revenues that you get paid currently by Microsoft that you still would expect to persist through Windows 8?

Well, we work with Microsoft in a number of fronts including the Xbox 360, and we're engaged with them across a number of divisions with a number of technologies. As it relates to Microsoft 8, if the commercial release doesn't include our technologies, then we're going to continue to work with OEMs and ISVs to make sure that we're supporting the consumer use case for DVD playback, which we believe is still a very important one. And we're also going to be looking at that as an opportunity to work with them to expand our technologies to be really improving the online content delivery. And so that's how we see it going forward.

Okay. And then as a follow-up to that, at this point then, if Windows 8 does not use your codecs within it, would you expect that your third-party revenues would increase as I would imagine if the OEMs would obviously have to start ramping third-party attach rates higher? And then I was just wondering if you could maybe comment or are you able to handicap in terms of whether you think that could make up for your loss revenues on Windows 8?

Well, I think that, first of all, we don't think this has a significant discernible impact on 2012 when we're still going to be on a Windows 7 year. We see Windows 8 coming into play during 2013. Once we are at Windows 8 adoption, if Windows 8 does not include our technologies, then we would expect the world to migrate to a place where there is one Dolby Digital decoder per PC, which is, of course, something the world had begun migrating to, but we still have certain revenue that is related to the second decoder on a PC. That's probably best represented today by the ISV revenue, which we've told you is about $80 million to $90 million. Most of that is second decoder revenue. But we think that the primary market for decoding Dolby Digital Plus is still an important one, both for DVD playback. We think that it really improves the online content experience as well. But the mix of that revenue will shift toward OEMs and ISVs to the extent that Windows 8 continue to go down this path.

We'll go next to Steven Frankel with Dougherty. Steven Frankel - Dougherty & Company LLC: Just following up on the Windows 8 situation. Describe what you would do to improve that online experience? Are these new products or functions that you sell -- package or sell differently today? What are you imagining?

We're imagining a combination of new and existing products. We -- as you know, we have a number of online service providers that have their content available in Dolby Digital Plus. We are providing solutions such as the PC entertainment experience in Dolby Mobile, which make for a significantly improved experience for any type of content. And I think the primary use case for those technologies today is in fact online and mobile content. By combining those technologies, we can do a much better job. The better audio quality we get, the more channels, the more metadata, we can make the experience much better. We can also ensure compatibility across all forms of playback, particularly in cases where people are downloading as opposed to streaming. And we actually think that our presence in broadcast does have some spillover effect into online and connected devices. In fact, as MSOs and others in the broadcast industry mature their plans and have introduced offerings into online distribution, we've seen some of them who are currently standardized on a single audio stream around Dolby Digital that want to continue that and would like to see our technologies supported on these devices, and we're going to work with them to do that. Steven Frankel - Dougherty & Company LLC: Okay, and could you just give us an update on PCEE, what your attach rates look like currently in the market?

Yes, we currently have about 30% attached for 2011. We announced 32 SKUs with the newest version of PCEE 4, that is the latest technology, which stands above and beyond PCEE 3 from a performance perspective. So to date, we have a total of about 311 SKUs, including all PCEE versions. Steven Frankel - Dougherty & Company LLC: And roughly, what kind of price cuts did you institute in the server and 3D market?

So Steve, we introduced some promotions around our 3D systems with our kids and glasses and also on the server side as we go through this cinema cycle. They were focused in the quarter, and that's what led to our lower gross margins. We're not providing specific percentages around that, but it was a part of our program in the recent quarter.

This is Ramzi. I just want to confirm, clarify, that the 30% attached is to consumer notebooks. Steven Frankel - Dougherty & Company LLC: Great. And do think you've seen the bulk of the enterprise upgrade to 7. Is that now behind you?

Yes, we believe that's accurate.

[Operator Instructions] We'll go next to John Bright with Avondale Partners.

Can you put Windows 7 in an order of magnitude for us for FY '11?

Well, I think -- so I can start by pointing out that our PC revenue for FY '11 is about $240 million. That's a combination of decoding for Dolby Digital Plus for optical drives and online content as well as our post-processing PCEE technologies. So I think the thing to focus on is the second decoder revenue because we think that's what stands to decline if -- as this rolls out. And the best indicator of that right now is our current ISV revenue that's about $80 million to $90 million, which we think is primarily driven by second decoders. We don't have perfect information on that, but we do believe most of that represents second decoder revenue. The remaining revenue would be what we think is the primary decoder as well as our other technologies.

And then secondly, on the Chinese market. Is there a mandated standard there and kind of tell us what that means by an optional standard?

There is -- they have a mandated standard for a local Chinese technology company as well as -- and then one optional technology, that's Dolby. This is the position we were looking to be in because we have been working with the broadcast community for many years. That's why 11 out of 13 terrestrial high-definition channels in China are on-air with our technologies. It's why we're now getting engagement with the local TV OEMs that do have the dominant market share in China. And so we signed up 2 of those in the most recent quarter. And so we think this puts us in a good position, and we're -- we think that this is the -- this puts the pieces in place for the digital broadcast transition in China. And when that unfolds, we think this puts us in a great position to build on the relationships we've built on in China. And we think that eventually, that's going to represent a high-growth portion of the market as that market does in fact go to digital.

Another question, as we peek into FY '12 around the corner, the TV market seems to be showing quite a bit of weaknesses. Are you getting any signs about that market from some of your customers?

Well, I think in terms of TV volumes, we see the same information that you see, and our guidance is around 5% for this year. And the markets that we're spending the most time in right now are markets that we do think stand to grow. We're spending a lot of time in those markets that are at the early stages digital broadcast and digital television adoption, in particular, China, which we've just discussed, India, where we're making very good progress, Star TV, the largest content producer in India that's been working with us for some time now to move their -- to put in place the infrastructure, the workflow, the skill sets to be able to upgrade their content from mono to surround sound. And they're advertising that quite significantly, so our India is going very well. And we're also spending quite a bit of time in Russia and South America. Those markets we think is where the growth is going to happen, and developed markets, I think, is what's -- is where you're seeing concerns.

Next, we'll go to Andy Hargreaves with Pacific Crest.

Just I want to ask a question about R&D investments at this point and how you guys are thinking about that. You obviously spend quite a bit there and are investing in some new markets. But it also seems like there's some stuff that you guys have been investing in over the last several years that we haven't seen a whole lot from. So I just want to get a sense for if there's room to cut in some areas, or if you're just going to continue to raise the investment?

Well, as we look at the opportunities in front of us, we're excited about our portfolio of investments. We think that it’s an important time for us to be investing in those growth areas. And the areas that we see are continued investment in making for the best possible audio experience over online and mobile distributive content, we think that we've established a value case there, and we think that we can grow on that and grow our adoption, and that is going to take the form of investment in regional coverage and support. We also continue to invest in technology development to make for the best possible experience. We also do see opportunities in the areas of imaging where we have brought products to market in the professional space. We continue to see opportunities on the horizon in the consumer space.

Okay. And just on the increase to the buyback. I guess, seems like the mandate was kept the same. So my question, I guess, is why not change the mandate and be a little bit more aggressive and/or institute a dividend or do something different?

You're right. The mandate is the same, and that's to offset employee stock compensation dilution from employee stock compensation. As we pursue the growth opportunity that we just talked about, we do think there may be opportunities to acquire to accelerate or expand the opportunities we're pursuing. But we're going to continue to be measured about that. Historically, those have taken the form of tuck-in acquisitions. And we're going to continue to evaluate our cash position as we go forward.

We'll take our next question from Jim Goss with Barrington Research.

A couple of things. First, you had a comment in the report that said fiscal third quarter licensing growth was led by broadcast and mobile. And I know you've talked about each of these a little bit, but I was wondering if you could talk about the -- how that broke down between broadcast and mobile in terms of share and where those were, which of those 2 is more important? I don't think you've talked about mobile at that level before. And which formats are being used on those devices?

Well, broadcast is looking to be about 30% of our licensing revenue this year. Mobile is still a component of our -- of what we disclosed as our other markets, and so still has not quite broken the 10% barrier but is our fastest growing market in percentage terms -- mobile, that is. In broadcast, it's being led by Dolby Digital Plus, also HE AAC and some of our post-processing technologies such as Dolby Volume are our technologies that we're driving into the market. In mobile, it's a combination of HE AAC, Dolby Digital Plus and our post-processing technologies, which take the form of Dolby Mobile. Increasingly, we are looking to deliver the complete package of technologies. That's how we can make the biggest difference, and it’s how we can ensure the best compatibility. And so in each of these cases, we're looking to deliver a comprehensive suite of solutions that just takes care of every audio need.

Okay. And one other sort of unrelated thing. In the -- your product sales number was more in line with or even above the first quarter where it had dipped in the second quarter, and the explanation at that time was that 3D was an issue and seemed to drive it lower. But you said -- you seem to say that 3D is still a bit of a problem, but the -- that product number jumped back up. Could you tell me how that happened?

Well, we had a strong first quarter in product and then in the second quarter is where we had the drop and then we've marginally improved in the third quarter in 3D. The second quarter, we were challenged with 3D, but we did see an improvement in the third quarter. So second and third quarters were pretty similar. It was the first quarter that was much larger. It was after that, that we ran into the challenges in the second quarter.

I think stepping back, if you look at our products business, which is the largest product category today, our Digital Cinema products, the industry is, of course, in the middle of the transition to Digital Cinema. We think they're probably halfway through the digital screen transition, probably a little further into the 3D transition. This is an investment cycle, and it is a cyclical business. We think there are -- there's a few more years to run on this, but we're going to -- we've probably passed the halfway mark in terms of this adoption cycle, and so these are the kind of levels we expect to see it settling from here. At the same time, I think as we -- as people can see their way through the Digital Cinema cycle, there's a lot of excitement about the industry, about what the next cycle might look like, what the next things are going to be that really bring moviegoers into the cinema. And this is an area where we're really excited about. Some of our new areas of investment, some of the technologies we have in the pipeline, and we view it as an opportunity to take leadership in that next generation.

So some of that category might be digital servers that may or may not have anything to do with 3D as well as the 3D-capable ones also?

Yes, we sell digital audio processors. We sell digital cinema video servers, and we sell 3D systems. As you might expect, often times, we're selling all 3 into a new screen, but sometimes, people might just buy the server from us. Sometimes they might just buy the 3D system from us. In each case, we've been maintaining our market share at about 20% in each of the server and 3D categories, and we continue to have the leading market share in audio processing.

[Operator Instructions] We'll go next to Barbara Coffey with Brigantine.

I actually have 2 questions. It sounded like you weren't exactly sure if you were or were not going to be in Windows 8. Has a definite decision been made on that?

Well, that's ultimately Microsoft's decision to make. What we know today is that we're not in the current build of the software. And so we are planning for a scenario where we're not in Windows 8. And that would mean for us working more extensively with OEMs and ISVs, each of whom we work with today, but working with them more extensively not only to support DVD playback but to really make for the best online experience.

I understand. And then you spoke with working with a number of streaming media partners. How many of these mandate that they stream in your coders and decoders?

The online streaming market is not one that is generally driven by mandates, unlike some of our markets. Broadcast is mixed in that regard. We have some where we're mandated. We have many where we haven't been mandated at all, but we work to articulate the value with people who want to bring the highest quality audio experience. That's how the online world works. We're working with people who care about the audio quality experience and help them to bring the best quality experience. But there are no mandates. There are consortiums that come together and set some recommended standards. Some of them have their own brand associated with them, so that if you want to support the DLNA standard or PCEE and UltraViolet, these all have specifications that if you want to meet that specification, which is designed to make for compatibility and other valuable features of online playback, then -- and we are -- we're in a good position with each of those. But to be clear, there are no mandates for online streaming.

Then perhaps I should have phrased this differently. Is there a way to track out of Netflix or out Roxi -- whatever, Rovi or out of any of these services, what percent of movies are streamed with the Dolby track?

The online streaming companies do track such usage. It's not always available to us or to the public. We do know that in the case of Netflix, if it's a stream coming into the home on enabled platforms, it's being streamed in our format. And we do know, working with Netflix, that is their preferred way to stream into the home given that it provides the users with a rich surround sound experience. As that data becomes available to us, to the extent that it becomes more public, we'll be more than happy to share it. But we -- I can tell you with high confidence that whether it's VUDU or Netflix or Apple, it is very clear from just the availability of content itself, the default into the home has been Dolby format. Almost the entire library of Apple high-def content and movies is in Dolby format. Almost the entire VUDU library is in Dolby format and Netflix into the home, as I mentioned previously, when it comes to high def, it is also in Dolby. So we're very encouraged about the progress we're making in that area.

And at this time, we have no further questions from the phone audience. I'll turn the conference back over to Mr. Kevin Yeaman for closing comments.

Thank you for joining us today. We look forward to speaking to you next quarter.

Ladies and gentlemen, that does concludes today's conference call. We'd like to thank you all for your participation.