) high-definition ("HD") audio solutions will be available on
Coolpad Quattro 4G smartphones, manufactured by the Chinese company
Yulong Computer Communications. The 4GLTE-enabled smartphones will
be marketed in the U.S. through
MetroPCS Communications Inc.
We believe that DTS is expanding its footprint in the booming
Chinese smartphone market, where Coolpad already has a significant
presence. Asia has been one of the most important, dynamic and
fast-growing consumer electronics markets over the past few years,
and it plays a critical role in the development and manufacturing
of innovative mobile, PC and network-connected products and
technologies. However, it remains significantly under-penetrated in
comparison to several developed markets, and thus represents a huge
According to IDC, 26.5% of the total smartphone shipments will
be from China in 2012, whereas the U.S. is estimated to contribute
17.8%. Robust customer demand for low-priced smartphones is the
primary reason for China's growing contribution.
We believe that DTS is well positioned to gain from this growth
potential over the long term, based on its partnerships with
several Asia-based companies such as Pantech, Fujitsu, Haier,
Samsung, LG, Panasonic, Changhong, Hisense, TCL, Konka, Skyworth
and now Huawei. We believe that these partnerships will drive
top-line growth over the long term.
Moreover, we believe that DTS's investment in the network
connected business will help it to gain significant market share
going forward. This, coupled with an improving tax rate and
incremental revenue from the acquisition of SRS labs, will drive
top-line growth in 2013.
However, the volatile macroeconomic environment and sluggish
consumer spending will remain the headwinds for Blu-ray sales in
the near term. Moreover, we believe that the strong growth of
network connected devices will eventually cannibalize the sales of
DVD-based products and Blu-ray sales.
Further, the company faces significant competition from
Dolby Laboratories Inc.
) and privately-held THX Limited, which remains a headwind going
Thus, we remain Neutral on DTS over the long term (6-12 months).
Currently, DTS Inc. has a Zacks #3 Rank, which implies a 'Hold'
rating in the near term.
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