DTS Inc. (DTSI) will be partnering with Changhong, a Chinese television manufacturer, to provide the latter with high-performance audio technology for plasma and high-definition LCD televisions. This would enable consumers to enjoy an enhanced audio experience with refined sound quality in the Changhong television sets.
Apart from Changhong, DTS audio technology is being used by five other Chinese television manufacturers namely Skyworth, Hisense, Haier, TLC and Konka. With the latest partnership with Changhong, DTS Inc. is expanding its reach in the high-definition entertainment segment in China.
The Chinese LCD television market is said to have the highest consumption rate and is the third largest producer in terms of volume shipments. According to analyst firm Displaybank, the Chinese LCD television market share was 21% of the worldwide market, compared to 19% share of North America.
All major Chinese manufacturers, namely Changhong, Haier, Hisense, Konka, Skyworth and TCL, claimed a 75% share of the total Chinese LCD TV market and 15% of the global TV panel shipment.
However, analysts believe economic conditions in Europeand North America, and high inventories in Chinawill hurt Chinese LCD market growth as shipments are expected to decline to 41-42 million units in 2011, compared with their earlier estimate of 43-45 million units.
On the backdrop of the current tumultuous market environment, we believe the new partnership will help DTS to maintain its market share in China. We also note that all the major Chinese manufacturers have partnerships with DTS, which bodes well for the company going forward.
We believe the widespread adoption of DTS’s high-definition audio technology will facilitate the company’s expansion into new markets, particularly in Europe, over the long term, thus driving further market share gains.
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.
Moreover, the company’s partnerships with LG in selling DTS-enabled smart TVs and the incorporation of DTS technology into LG’s flagship 3D phone platform will be incrementally beneficial for DTS Inc. in the long run.
However, DTS Inc. continues to face stiff competition from Dolby Laboratories Inc. (DLB), Sony Corp. (SNE) and privately held THX limited.
Currently, DTS has a Zacks #4 Rank, which implies a Sell rating on a short-term basis.
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