DTS Extends Pantech Partnership - Analyst Blog


A leading provider of high definition ( HD ) audio technology, DTS Inc. ( DTSI ) recently announced that it has extended its partnership with Korean mobile handset maker Pantech Co. Ltd. Under the terms of the multi-year agreement, DTS's audio technology will be integrated into all Pantech devices including smartphones.

DTS-Pantech collaboration dates back to 2010, when Pantech agreed to integrate DTS digital surround audio decoding technology into select models of smartphones, which came out in April the same year.

The partnership, initially relating to smartphones, was later extended to Pantech's tablet phone Vega, which has received an overwhelming response from customers, primarily based on DTS high-performance audio technology. We believe the new partnership will boost Pantech's top-line growth going forward. Simultaneously, it will help DTS to expand its footprint in the growing economies of Asia where Pantech 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 plays a critical role in the development and manufacturing of innovative mobile, PC, and network-connected products and technologies. Most importantly, Asia remains mostly under-penetrated in comparison to other international markets, and thus represents a huge opportunity in our view.

We believe DTS is well positioned to grab this huge opportunity over the long term, based on its diversified product portfolio, cutting-edge technology and accretive partnerships. DTS has partnerships with a number of big players with significant presence in Asia such as Fujitsu, Haier, Samsung, LG, Panasonic, Changhong, Hisense, TCL, Konka, Skyworth and Huawei.

As a part of its expansion policy in Asia, DTS recently opened a new office in Singapore. We believe the new office will help the company address the growing consumer demand for high-quality audio regardless of the platform in the region.

DTS is also expected to gain from the growing customer demand in the new sectors such as Televisions (particularly home entertainment), Smartphones, Digital Media Players and Virtual audio applications (PCs). We believe partnerships such as the one with Pantech will drive further growth in these new markets.

The company expects these new markets to contribute 15.0% to 20.0% of fiscal 2011 revenue. For fiscal 2011, revenue is expected to reach $95.0 million to $100.0 million. Currently, the Zacks Consensus revenue estimate is pegged at $97.0 million for fiscal 2011.

We believe that DTS Inc. will gain significant market share over the long term, based on its product portfolio, increasing online availability and accelerated expansion of the DTS technology in new markets. However, the company faces significant competition from Dolby Laboratories Inc. ( DLB ) , Sony Corp. ( SNE ) and privately-held THX Limited, in some of these new markets, which will hurt its profitability going forward.

We maintain our Neutral rating on a long-term basis (6-12 months). Currently, DTS Inc. has a Zacks #3 Rank, which implies a Hold rating on a short-term basis (1-3 months).

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

This article appears in: Investing , Business , Stocks

Referenced Stocks: DLB , DTSI , HD , SNE



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