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DTS Inc. (DTSI - Snapshot Report) continues to impress with its innovative product pipeline, increasing online availability, new customer wins and partnerships. Although shares of this Zacks Rank #2 (Buy) stock plunged 6.4% ($1.36) to close at $19.76 on May 31, 2013, it represents 28.73% return over the last six months.

DTS posted better-than-expected first quarter of 2013 results with non-GAAP earnings (including stock-based compensation) of 7 cents, much better than the Zacks Consensus Estimate of a loss of 7 cents per share. Although revenues missed the Zacks Consensus Estimate, it jumped 21.7% from the year-ago quarter to $32.7 million.

Lately, the primary driving factor behind DTS’ strong performance has been strategic partnerships with the likes of Qualcomm (QCOM - Analyst Report), Samsung, Pantech, Yulong, Lenovo, Panasonic, Fujitsu, Haier, LG, Changhong, Hisense, TCL, Konka, Skyworth and Huawei.

The partnerships with these consumer electronics manufacturers have not only expanded DTS’s penetration in the Asian markets but also boosted revenue growth over the last few quarters.

Most recently, DTS and Chinese automaker BYD Auto entered into a partnership, under which four BYD models, scheduled to be released in the second quarter of this year, will integrate DTS Digital Surround.

We believe that this partnership will expand DTS’ reach in the Chinese automotive industry. Moreover, the current deal will also help DTS to reap the benefits from the growing demand for environment-friendly, green technology-run automobiles.

Notably, in the first quarter, DTS reported a modest rise in automotive revenues, which represented approximately 10% of total revenue. DTS believes that the primary growth driver for 2013 will be the network connected business (TV and mobile devices), which will offset sluggish growth from the Blu-Ray market.

We believe that DTS will continue to gain from accelerated expansion of its technology into new markets, such as smartphones, portable devices, digital media players and network-connected TV space.

This coupled with higher penetration in the Chinese smartphone and automotive markets and incremental revenues from the acquisition of SRS labs will drive top-line growth over the long term.

However, the ongoing volatility in the macroeconomic environment and sluggish consumer spending coupled with significant competition from Dolby Laboratories (DLB - Snapshot Report) and Sony Corp. (SNE - Snapshot Report) are the major headwinds.

Currently, DTS has a Zacks Rank #2 (Buy).

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