Management Discussion Regarding Opportunities, Challenges and Risks Our Technology Licensing Segment Revenue from our technology licensing segment constitutes the majority of our total revenue, representing 73%, 75% and 77% of total revenue in fiscal 2004, 2005 and 2006, respectively. We categorize our technology licensing segment into the following markets: * Consumer electronics (CE) market €“ primarily comprised of DVD players, DVD recorders, audio/ video receivers and home-theatres-in-a-box. * Personal computer (PC) market €“ primarily comprised of software DVD players and DVD authoring applications. * Broadcast market €“ primarily comprised of televisions and set-top boxes. * Gaming market €“ primarily comprised of video game consoles. * Automotive market €“ comprised of in-car entertainment products. * Licensing services €“ revenue from patent pool administration performed by our subsidiary Via Licensing. Historically, the consumer electronics market, which is driven primarily by revenue attributable to DVD player sales, has been our largest market, representing just over 50% of our licensing revenue in fiscal 2005. In fiscal 2006 the consumer electronics market was approximately 45% of our licensing revenue, primarily due to faster growth in other markets. There continues to be a number of growth opportunities in the consumer electronics market, such as next-generation DVD players for high-definition content. Our Dolby Digital, Dolby Digital Plus and TrueHD technologies have been selected as mandatory audio standards in the High-Definition Digital Versatile Disc (HD-DVD) format. Dolby Digital has been selected as a mandatory audio standard and Dolby Digital Plus and TrueHD have been selected as optional audio standards in the Blu-ray format. However, the release and consumer adoption of next-generation DVD players has been slower than expected due, in part, to the competing HD-DVD and Blu-ray formats. Consequently, we expect our ability to generate significant royalties from incorporation of our technology in next-generation DVD players will also be delayed. Even assuming resolution of the competing disc format conflict, the rate of consumer adoption of next-generation DVD players is uncertain and may be slower than past growth rates of traditional DVD players. Furthermore, as the market for traditional DVD players continues to mature, the industry has moved towards lower-end Chinese- made DVD players, which we believe poses challenges in royalty collection and intellectual property enforcement in China. We are continuing to diversify our sources of licensing revenue by actively promoting the incorporation of our technologies for use in growing markets outside of our traditional consumer electronics market, such as personal computers, broadcast, gaming and automotive. The personal computing market, which represented over 25% of our licensing revenue in fiscal 2005 and just over 30% in fiscal 2006, has been primarily driven by demand for software DVD players and to a lesser extent, DVD authoring applications. PC manufacturers are experiencing pricing pressure and, as a result, may begin to offer DVD playback functionality as an optional addition to their base models at an additional cost to the consumer or business, which may affect demand for our technology. The broadcast market, which is primarily driven by demand for Dolby Digital in televisions and set-top boxes, represented approximately 10% of our licensing revenue in fiscal 2005 and just over 10% in fiscal 2006. The broadcast market has benefited in recent years from the transition from standard televisions to high- definition and digital televisions. Revenue generated from the gaming and automotive markets has primarily been driven by demand for Dolby Digital and ATRAC technology in video game consoles and Dolby Digital in in-car entertainment systems. 45
Previous Page |
Next Page