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A leading provider of high-definition audio solutions, DTS Inc. (DTSI - Snapshot Report) recently entered into a partnership with DivX. This partnership will enable the integration of DTS-HD audio encoding and decoding into the upcoming DivX10 software.

DivX products are used to compress lengthy video segments into small sizes without compromising on the high visual quality. The integration will enable users to enjoy studio-quality audio in their DivX videos.

DivX10 would facilitate the creation and playback of DivX video in High Efficiency Video Coding (HVEC), featuring DTS-HD audio on Microsoft’s (MSFT - Analyst Report) Windows as well as Apple’s (AAPL - Analyst Report) Mac.

We believe that the partnership will help in expanding DTS’s customer base, leading to higher profitability, going forward.

DTS continues to gain market share driven by its strong product portfolio, robust growth from the Blu-ray market and increasing penetration into network-connected devices, such as Internet-enabled television, smartphones, personal computers and portable devices going forward.

Moreover, the company’s extended partnership programs with Samsung to provide sound solutions for TV and inclusion of its technologies in Qualcomm’s latest generation of processors are positives for the company. This apart, partnerships with mobile and tablet makers such as Huawei, Pantech, Lenovo and Panasonic are also encouraging.

However, we believe that the strong growth of network-connected devices will eventually cannibalize the sales of DVD and Blu-ray-based products. This in turn will hurt DTS' growth over the long term. Further, the company faces significant competition from Dolby Laboratories Inc. (DLB - Snapshot Report), Sony Corp. and privately-held THX Limited, which will impact its future profitability.

Currently, DTS has a Zacks Rank #3 (Hold).

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