Ladies and gentlemen thank you for standing by. Welcome to the Dolby Laboratories Conference Call discussing Fiscal First Quarter 2006 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. At that time if you have a question you will need to press “*” “1” on your telephone. As a remainder this call is being recorded, Thursday, January 26, 2006. I would now like to turn the conference call over to Paula Dunn, Director of Corporate Communications for Dolby Laboratories. Please go ahead, Ms. Dunn.

Thank you, good afternoon everyone. Welcome to Dolby Laboratories first quarter fiscal 2006 earnings conference call. Joining me today are Bill Jasper, Dolby Laboratories President and CEO; Martin Jaffe, Executive Vice President of Business Affairs; and Kevin Yeaman, Chief Financial Officer. In addition, Tim Partridge, Dolby Senior Vice President and General Manager of the professional division is here to participate in today’s Q&A. If you have not already received a copy of our press release for the results discussed here today you can find it on our website www.dolby.com under the Investor Relations section. This conference call contains forward-looking statements within the meaning of Section 27-A of the Securities Act of 1933 as amended and Section 21-E of the Securities Exchange Act of 1934 as amended. These statements include statements relating to our projections for future operating results for our fiscal year ending September 29, 2006; market trends for the industries in which we compete including trends related to the availability of high-definition content and the excepted growth of the HDTV market generally. DVD player sales; trends in the PC, broadcast, gaming, automotive and portable entertainment device market; our expectations regarding the success of our Digital Cinema initiative; the capabilities and market acceptance of our products and technologies; our ability to compete successfully in our market and our plans for and possible benefits from addressing under-collection of licensing revenues in China through operational improvement. These forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause results whether specific to Dolby or related to the industries in which we compete, to differ from those expressed or implied by these forward-looking statements. Important factors could cause actual results to differ materially from those in the forward-looking statements including risks associated with whether the markets for consumer electronics products,…

Thank you Paula. Some of you may have attended the 2006 Consumer Electronic Show in early January. This year CES was the most recent showcase of the consumer electronic industries latest products and innovations. And it clearly illustrated the opportunity before Dolby. Through our technologies brand and strong industry position we are making significant progress towards our long-term objective of being an essential element in the best entertainment technologies available. I want to spend the next few minutes talking about three trends evident at this year’s Consumer Electronic Show and how Dolby is strategically positioned for each. First, we are seeing a real advancement in HDTV along with technical improvements in digital displays we are seeing significant retail price reductions which could board well for consumer adoption. According to industry reports average pricing for a 42-inch HD plasma display has dropped 35% over the last year. At the same time more HD content is becoming available from broadcasters around the world, and next generation gaming video are becoming so immersive that they almost require an HD display. Further more SEC’s mandate that any digital television set sold in the U.S. that this 25 inches or larger after the summer or 13 inches and larger starting in March 2007 must contain an ATSC Tuner that’s helping to drive the adoption of HDTV. Dolby has been positioning itself for this market through a number of accomplishments. The Advanced Television Systems Committee has mandated Dolby Digital and Dolby Digital Plus as the audio standard for Digital Television in both North America and Korea. This means we collect a royalty for every digital television shipped with an ATSC Tuner in these geographies. On the content side, the European broadcasting Union has recommended Dolby Digital for multi-channel sound, and over the last few quarters we’ve…

Thank you Bill. Starting with the financial results, revenue for the first quarter was $91 million, up 8% year-over-year and was comprised of 76% licensing revenue and 24% product sales and production services revenue. In the technology licensing segment, revenue increased 11% year-over-year in the first quarter driven primarily by growth from our PC and gaming markets and to a lesser extent by our broadcast and automotive markets as well as our Via subsidiary. While licensing revenue from our largest market: Consumer Electronics declined year-over-year. In the products and services segment, revenue for the first quarter was flat year-over-year as soft demand from theaters as a result of a weak box office was mostly offset by growing product sales to broadcasters and an increase in production services rendered in some international markets. Let me turn to the details of the P&L for the quarter. Licensing gross margin was 90% or down 1 point sequentially due to technology mix. Products gross margin was 21%, a decline of 26 points sequentially while services gross margin was 52%, a decline of 8 points. The decline in products and services gross margins is due to our recognition of a $6.4 million charge with the funding and installation of Digital Cinema equipment related to the release of Walt Disney’s Chicken Little. Approximately $5.7 million of this charge is reflected in cost of product sales, while the remaining 700,000 is reflected in cost of services. In our fourth quarter conference call we estimated this total charge would be approximately $7 million. The charge was lower than expected as the number of systems did not result in a loss. SG&A expense was 40% of revenue in the first quarter, a 2-percentage point decline sequentially due to higher Q1 revenue. Similarly R&D expense was 9% of revenue for…

Thank you Kevin. I will provide update from the DVD portion of our licensing business, our progress to date in China and our Digital Cinema initiative. In the DVD portion of our business we saw continued maturation in the market for traditional DVD players as well as the relatively slow adoption of DVD recordable players. Also some manufactures are reducing the complexity of their low-end DVD players which reduces the number of processors on which Dolby earns licensing revenue. We are adapting by diversifying into market such as PC, broadcasting, gaming, automotive and mobile as well as by having our technologies adopted as standards in both next-generation DVD formats. With respect to the next-generation DVD cycle, we are beginning to see some manufactures announce timetables for shipments. At this year’s CES, Toshiba announced that it will begin shipping HD-DVD players in March. And Pioneer announced that it will begin shipping Blue-ray disc drives in the first quarter of this year. While it was too soon to estimate the size of this market in 2006, Dolby Technologies are well positioned as standards in both formats. Now I would like to give you an update on our collection activities in China. Well clearly a certain amount of funded collections is indemnity to businesses in some low cost manufacturing countries like China. We planned to do more to address this issue to a number of operational improvements. Over the last several quarters we have augmented our compliance scheme. As we move forward we will continue to increase our attention, efforts and resources in this area. This will include adding local account managers to establish deeper relationships with IC and device manufactures, improving our tracking of technologies by focusing on our information rights under our license fee agreements and by better analyzing the information…

Great. Thanks, great quarter guys. Bill, you highlighted some great takeaways from CES, but was there anything at CES, either from CES or since then that lead you to believe that the HD cycle will be, perhaps any even larger then you may have anticipated or maybe not as large. And then also to, can you sort of speculate a little bit looking over the horizon, when you think a victor will emerge between either Blue-ray or HD-DVD? Thanks.

Okay thank you, Ralph. Now I would say our experience at CES was probably consistent with what we have been thinking before in terms of HDTV. All indicators are that the market is what we felt is going to be and fortunately it is starting to move forward. As to the timing of Blue-ray versus HD, you saw the announcements at CES, we are finally starting to see some products announced at probably lower price points than had been and anticipated a year ago. But as to when this takes off, when this hits, it’s way too early to say. I think it’s probably sufficient to say that we are not really going to see much in the way of royalties in fiscal 2006. People are really looking for this rollout to happen in 2007 and as a result we are really not planning on anything in this year.

Great and then also there is clearly a lot of movement in the mobility market, not only with the devices but also the ability to move content around. Are you forecasting this to be an ’06 event work could affect your numbers or do you look those market more sort of ’07 and beyond of that? Thank you.

We are looking to the mobile market for ’07 and beyond, it’s clearly is a long-term lead item, we obviously have some real possibilities but we don’t have anything in 2006 in this market.

Okay, great. Thanks guys.

Next we’ll go to Michael Kern with (indiscernible). Q – Michael Kern: Hi guys, quickly on the digital cinema, you mentioned that your virtual print fees aren’t material right now, when do you expect those to become material?

Hi Michael, this is Tim Partridge. Yeah, we are just beginning to collect from those virtual print fees, of course that very much depends on how long a film runs and Chicken Little has been very successful and is actually still running in some theaters. So it really depends on the number of film that are deployed digitally and also how long they run. Q – Michael Kern: Okay and also, for Via Licensing with the management shakeup. Can you give a little more color on what you are expecting and what’s your opportunities in that area are?

Well, we think this is a great win-win-win, its win for Via it’s a win for Dolby and it’s a win for Ed and Ramzi. Via is really positioned to move on to the next stage of its development with a number of new licensing programs getting into a number of new markets where it hasn’t operated before. And fortunately Ed has significant contents throughout the consumer electronics industry which we think were going to allow Via to continue to expand. Ramzi, he has taken Via to the level where it is and we are looking to bring him into the consumer division to continue to improve its operational effectiveness and to help move it forward to the next stage as we continue to diversify in the number of markets in which we are operating. Q – Michael Kern: Okay, thank you very much.

Next we’ll go to Daniel Ernst with Hudson Square Research.

Yes, good evening thanks for taking the call. A couple of questions, first, two questions on the Digital Cinema, you said that the loss was mostly expected because a couple of implementations did not result in the last case. Talk about how that occurred and then secondly you mentioned that the lines that were run impacts the VPS, can you talk about the mechanics there? And then on the – your comment on the Dolby included with ATSC Tuners, is the royalty there similar to a two-channel DVD implementation? Thank you.

Yeah Daniel, this is Tim Partridge again. Yeah a handful of screens with the rush that we have with Chicken Little to get all the screens operational for Disney, a handful of screens were done under slightly different deals that just didn’t result in the loss. And as far as the Chicken Little running a long time, how does that affect VPS, will it simply that if a film plays for 3 months then you just get one VPS for the whole 3 months and that screen isn’t available for the next film that comes along, so that’s how, that’s how it affects VPS.

Regarding the ATSC Tuner royalty comparable to the two-channel DVD, Daniel just we obviously don’t disclose detailed royalties but we can say that they are not significantly different.

Okay understood. And the next question is, just wanted to follow-up on the licensing side, last quarter you gave us a little bit of color on the make-up of licensing business and you said that DVD had been running around three quarters and have been, you know, coming down and then PC had been moving into the 30% category licensing. Is that still accurate, did DVD continue to follow a bit and PC gain above 30?

Well, we didn’t see anything in Q1 which changes our view on the full year which to recap was that, coming out in ’05, consumer electronics is 50% of our licensing revenue, we expected that to be flat to slightly down in ’06. And to gain continued diversification through growth in our other markets, roughly half of that we anticipated coming from PC and roughly half coming from the other markets in licensing. And what we found on Q1 is consistent with that view.

Okay, thanks a lot for your update.

Okay, well we thank everybody for your attention. Thank you for joining us on today’s call and we look forward to meeting with you down the road. Thanks very much, bye-bye.

That does conclude today’s conference call. Thank you all for your participation, have a great day.