) high definition ("HD") sound technology, Envelo, will now be
available on Huawei C8655 smartphones. The Envelo technology, which
will be available through
), promises enhanced sound quality on the newly-launched
smartphones from Huawei.
We believe that DTS is expanding its footprint in the growing
Chinese smartphone market, where Huawei Technologies Co. has a
significant presence. According to research firm Analysys
) and Samsung's growing share in the Chinese market, the low-end
smartphones (priced between 700 yuan and 1,500 yuan) jumped to 64%
in the first quarter of 2012 from 45% in the year-ago quarter.
Consequently, the demand for low-end smartphones also increased
Huawei's market share to 12.2% in the first quarter of 2012 from
7.4% in the comparable quarter of the prior year. Huawei is now
trying to get a foothold in the high-end smartphone market with
innovative branding and competitive pricing.
We believe that DTS' partnership with Huawei would be
incrementally beneficial for the former in the long run.
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 underpenetrated in
comparison to several developed markets, and thus represents a huge
opportunity, in our view.
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.
We believe that DTS will continue to gain market share riding on
its strong product portfolio, robust growth from the Blu-ray market
and increasing penetration into network-connected devices, such as
Internet enabled television, smartphones, personal computers and
portable devices going forward.
Moreover, we believe that the strong growth of network-connected
devices will eventually cannibalize the sales of DVD and
Blu-ray-based products. This in turn will hurt DTS' growth over the
long term. Further, the company faces significant competition from
Dolby Laboratories Inc.
) and privately-held THX Limited, which will impact its
profitability going forward.
Thus, we remain Neutral over the long term (6-12 months).
Currently, DTS Inc. has a Zacks #2 Rank, which implies a Buy rating
in the near term.
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