DTS, Inc. (NASDAQ:DTSI)
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The Company is a provider of entertainment technology, products and services to the audio and image entertainment markets worldwide.
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The Company is a provider of entertainment technology, products and services to the audio and image entertainment markets worldwide.
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DTS Inc. is one of the leading providers of entertainment technology, products and services to the audio and image entertainment markets worldwide. The company with its core competency in high quality digital multi-channel audio, commonly referred to as surround sound, which provides more than two-channels of audio, should be in a better position to provide quality sound solutions for next generation home theater. It generates around 62% of its revenue from consumer segment, while cinema and digital image segments constitutes 31% and 6% respectively.
The consumer segment’s revenue is primarily dependent upon the home theater and DVD player markets, which have experienced rapid growth over the past several years. This is evident from the fact that 38% of the households today own a home theater, when compared to 21% witnessed in 2000. One of the key indicators for future of home theater market is the growth of high definition displays (HD), the next generation DVD formats. According to JupiterResearch, the number of HD-receiving households will reach close to 75 million, or 63% of total households in the US, by the end of 2010.
The trend in the motion picture industry and movie exhibition market toward digital delivery of entertainment content continues to gain momentum. To take advantage of this trend, DTS has signed an exclusive license agreement with Avica Technology Corporation, a provider of products and services for the digital cinema market. The given agreement should complement the DTS cinema product offerings and should accelerate their entry into the digital cinema market.
Further, it is anticipated that home theater systems featuring surround sound will continue to experience solid growth and drive a majority of home audio industry sales. A bright outlook for DVD market should enhance DTS sales and thereby making it a healthy investment proposition.
The entertainment industry over the past fifteen years has gone through transition phase, witnessing a shift from analog to digital entertainment content, and technological advancements in digital coding. These trends helped create a technical foundation for the widespread adoption of digital multi-channel audio and high definition video for many forms of entertainment. DTS being one of the leading providers of entertainment technology, products and services to the audio and image entertainment markets worldwide should benefit from this trend.
The company has made plans to dispose off its DTS Digital Cinema business, which will enable them to focus on licensing branded entertainment technology to the large and evolving audio, game console, personal computer, portable and broadcast markets. The company believes that these initiatives would help them to achieve an operating margin of 20% in 2007. Moreover, with the acceleration of the high definition optical media cycle the company expects operating margin to be at least 50% within the next five years.
Consumer segment revenue is highly influenced by consumer’s interest towards home theater system. High Definition Displays have been an important driver in the proliferation of home theater systems. Jupiter Research estimates that 31% of U.S. households, or 35 million homes, had an HDTV as of the end of 2006. HDTV penetration is expected to reach over 70% of U.S. households by 2010. a positive outlook for entertainment industry should help DTS to beat the market in the coming fiscal.