A leading provider of high definition (HD) audio technology, DTS Inc. (DTSI) entered into a partnership with Digital Rapids, a premier provider of encoding and transcoding solutions.
Under the terms of the agreement, DTS and DTS-HD audio support will be integrated into the prospective versions of all Digital Rapids solutions.
Headquartered in Ontario, Canada, Digital Rapids offers products for customers with varying profiles and sizes across the globe.
Digital Rapids solutions are an answer to media transformation and distribution workflow problems, including capturing, encoding, transcoding, protecting, streaming and delivering video content. Digital Rapids products comprise Digital Rapids Transcode Manager and most popular StreamZ and StreamZHD encoding solutions.
We believe the DTS-Digital Rapids partnership is crucial for both the companies. Since Digital Rapids competes in a severely fragmented broadband video transcoders market, the integration of DTS technology will be beneficial to Digital Rapids in gaining significant market share going forward.
We contend that the partnership will particularly facilitate DTS’ market share gain as the company continues to make forays into the online entertainment market. Based on Digital Rapids’ expertise in supporting multi-platform distribution opportunities, multi-format workflows and applications ranging from Internet TV, IPTV, Blu-ray and broadcast, the collaboration is expected to boost top-line growth over the long term.
DTS’ growth strategy has been focused on developing lucrative partnerships with major players. DTS has also partnered with noted technology companies such as Onkyo, Pantech and Intel Corp. (INTC), which will augment its top-line growth in the coming quarters.
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.
Most recently, DTS entered into a partnership with Orange’s Internet Protocol television (IPTV) service. DTS also 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.
We believe the widespread adoption of DTS high definition Master Audio technology will facilitate DTS’ 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.
In the near term, a 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.