DTS CEO Sees Staying Power for Blu-ray Despite Industry Shift Away From Optical Disc Drives
Maintaining a cautious approach based on “growing concerns” about the macro-economy, DTS scaled back projections for the year in its fiscal 2011 forecast. It shaved revenue projections from $100 million-$105 million to $95 million-$100 million, CEO Jon Kirchner said on the company’s Q2 earnings call late Monday. For Q2, the company saw growth from Blu-ray, network-connected devices and automotive markets, offset by low recovery payments and “softer than expected” game console revenue, he said. Blu-ray revenue, including standalone players and PCs, was up 34 percent in Q2 year over year, the company said.
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Despite the success of the Blu-ray disc format, the company is setting its sights on next-generation delivery platforms. That’s just as news about Microsoft omitting optical disc support from next year’s Windows 8 OS and Apple’s exclusion of an optical disc in the most recent Mac Mini has surfaced in recent weeks (CED July 26 p4). Citing the large installed base of optical drive content and Blu-ray’s backward compatibility with DVD and CD, Kirchner said DTS expects demand for optical discs drives “for a long time to come.” Outside of South Korea, “where there hasn’t been an optical media market for some time, we are still pretty early in this transition toward digital delivery in most of the world,” he said.
Kirchner said the most important thing is to “go with the trend” toward connected devices and “naturally penetrate those devices with our various technologies.” DTS doesn’t have to worry about being “totally right” about the exact timing of the transition, but “we have to be right about being in all of the places where entertainment is being consumed,” he said. The company is actively focused on putting more emphasis on the networked space because the unit volumes and pace of business are moving along at “a pretty aggressive clip,” he said. Networked connected devices represented more than 15 percent of Q2 revenue.
Regarding the transition from DVD to Blu-ray in the PC space, Kirchner said there’s a $15-$20 spread between DVD-R and Blu-ray ROM drive prices, but he expects the delta to narrow as component costs decline. He said the Japan earthquake “may have slightly disrupted the natural course of events in Q1 and Q2,” but it won’t be too long before scale in the Blu-ray business drives costs down to where the delta narrows “considerably.” When it does, he said, “substitution will be the rule of the day” because of Blu-ray’s compatibility with prior formats and the “relatively inexpensive” upgrade.
Offsetting gains in networked devices and Blu-ray was the standard-definition AV business, which had an 8 percent decline primarily due to the continuing decline of DVD and the ongoing shift in home-theater-in-a-box product to Blu-ray, said Chief Financial Officer Melvin Flanigan. The AV segment comprised 25 percent of total revenue, he said, and broadcast revenue was 5 percent of the total. Mobile device revenue more than doubled sequentially and grew from a zero base a year ago, he said. Virtual category revenue from properties including Envelo and Surround Sensation was up 148 percent. TVs posted 12 percent year-over-year revenue growth in Q2, he said, and the auto market posted 11 percent gains, representing 15 percent of total revenue, he said. The auto market could see a “slight disruption” from effects of the Japan earthquake, Kirchner said, but the market has “considerable potential.”
Total Q2 revenue grew 18 percent to $20.6 million compared with the prior year, DTS said. Profit rose to $5.68 million from $3.75 million.