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As I mentioned in my previous post, operating margins are something to watch with Dolby.

One of the big reasons that Dolby was recommended by Stock Advisor was the operating margin in excess of 50%. It was sold after the margin dropping as DVD and PC revenue evaporated. Even though Dolby managed to make up the revenue elsewhere, growth stopped and expenses came up as they scrambled to make new products.

Year Op Margin(%)
2008 44.8
2009 50.5
2010 46.5
2011 44.7
2012 38.8
2013 27.0
2014 28.5
2015 22.0
2016 22.6
2017 23.0

It looks like it may have bottomed and might be starting to turn ever so slightly. What should we be looking for in future quarters? Revenues need to get to double-digit growth as they have been predicting for as many conference calls as I can remember. They need to keep SG&A expenses in check. R&D expenses need to come down. They shouldn't need to invest as much in R&D at this point in the product cycle.

They are guiding for modest revenue growth in 2018 (about 6 - 7%) and op ex about 2% higher than last year. Maybe they are setting a low bar that they can easily get over. I'll be interested to hear what they say about R&D expenses in the next call.

I gave Dolby a thumbs up in Caps back in Feb 2012 and extended the pick in Jan 2015. It is up 103.55% compared to 107.14% for the S&P 500. My start price was $32.10 and today it is $65.35 (a double). That's not market-beating by any means, but it is not too far behind... Greg (DLB shareholder, still long DLB)
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