A leading provider of high definition audio technology, DTS Inc. (DTSI) has agreed to incorporate its digital technology into Orange’s Internet Protocol television (IPTV) service.
IPTV is a system that enables reception and display of a video stream encoded as a series of Internet Protocol packets. According to research firm MRG Inc., the number of global IPTV subscribers will grow from 41.2 million at the end of 2010 to 101.7 million in 2014, a compound annual growth rate of 25.3%.
According to research firm Point Topic GBS, IPTV subscribers increased 8.0% to 36.3 million in the first quarter of 2010. In the 12 months ending March 31, global IPTV subscriber growth was 46.0%, equating to 11.4 million new IPTV subscribers.
We believe the above IPTV statistics are as positive for Orange as for its technology partners, such as DTS. DTS also has other important partnerships with important technology companies such as Onkyo, Pantech and Intel Corp. (INTC) that will augment its top-line growth. Over the long term, the widespread adoption of DTS high definition Master Audio technology would help DTS expand into new markets, particularly in Europe, thus driving further market share gains.
In the second quarter of 2010, the company added Sonic Solutions (SNIC) to its list of top-notch television partners (which include the likes of Samsung and LG), and its high-performance DTS audio continues to do very well on their network connected televisions.
DTS recently entered into a partnership with computer hardware manufacturer Micro-Star International (MSI), under which the company will incorporate Surround Sensation UltraPC software into MSI’s latest line of G-Series notebooks. The GX660, which is popular among gamers, will be shipped with DTS Surround Sensation worldwide. We believe these partnerships will drive profitability over the long term.
We maintain a Neutral rating on a long-term basis (6-12 months). We believe DTS continues to gain market share riding on its strong product portfolio, increasing online availability and accelerated expansion of the DTS technology into new markets, such as smartphones, portable devices and digital media players.
In the near term, weak Blu-ray unit growth and increasing operating expenses could dig into the company’s profitability. Moreover, DTS continues to face stiff competition from Dolby Laboratories Inc. (DLB), Sony Corp. (SNE) and privately held THX limited.
Currently, DTS has a Zacks #3 Rank, which implies a Hold rating on a short-term basis.
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