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DTS Inc. (DTSI - Snapshot Report) recently partnered with Korean mobile manufacturer LG Electronics (LG - Snapshot Report) to develop its latest 3D smartphone LG Optimus (LG-P920).

The smartphone, which has debuted in Korea, is scheduled to release in more than 60 countries in the second half of 2011. The latest device is equipped with DTS’ high-performance audio technology and is supported by the tri-dual architecture.

The “tri-dual” configuration boosts performance, leveraging its dual-core, dual-channel and dual-memory architecture capabilities. LG Optimus is the world’s first smartphone, which can be used without the help of a 3D glass.

LG integrated DTS’ audio decoding (or DTS Digital Surround) technology into the latest smartphone. The integration of DTS technology in LG products is the latest milestone in the growth of DTS, which is quickly becoming a household name in the home entertainment arena.

The integration of DTS Inc. technologies with mobile manufacturing companies will be incrementally beneficial for the company as it would gain significant traction in the mobile and tablet market space. As the demand for mobile devices increase, the company would cater to more manufacturers and thus increase its revenue.

With the competition heating up in the mobile and tablet space, product quality and audio-visual experience along with innovations and affordability will be the key factors in determining market share. In this scenario, the onus lies with the manufacturing companies to combine the technologies so that consumers can easily stream content from their phones and enjoy superior sound quality.

Moreover, DTS has partnerships with a number of other companies such as Pantech and Chinese manufacturers such as Changhong, Skyworth, Hisense, Haier, TLC and Konka, which will drive growth. The company’s existing partnerships with the Internet Protocol television (IPTV) operators in the broadcast market will also boost top-line growth and expand their business going forward, in our view.

Recommendation

We believe the widespread adoption of DTS’s high-definition audio technology will facilitate the company’s expansion into new markets over the long term, thus driving further market share gains.

However, DTS continues to face stiff competition from Dolby Laboratories Inc. (DLB - Snapshot Report), Sony Corp. (SNE - Snapshot Report) and privately held THX limited.

We maintain a Neutral rating on a long-term basis (6-12 months).Currently, DTS has a Zacks #4 Rank, which implies a Sell rating on a short-term basis (1-3 months).

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