People have been going ga-ga over high-definition TVs for a while now, but recent advances in home entertainment electronics aren't limited just to the video side. Those pricey HDMI (high-definition multimedia interface) cables that are plugged into the back of many high-def displays carry audio signals as well. Both the video and audio parts of the equation are taking a big step upward in fidelity with the new HDMI 1.3 specification.
On the video side, HDMI 1.3 adds support for many more colors. You may think that your TV is already displaying all the colors you need, but this technology allows for many more shades of red, for example. HDMI 1.3 also improves audio since it allows for each bit of the original soundtrack to be played back during a movie -- in other words, none of the original bits in the sound recording are thrown out because of space or bandwidth limitations.
Silicon Image (NASDAQ:SIMG) is one of the companies driving development of the HDMI specification (along with Sony (NYSE:SNE), Hitachi (NYSE:HIT), Thomson, Philips, Matsushita, and Toshiba). Besides participating in the development of the HDMI specification, Silicon Image also designs chips that electronics manufacturers can use to add HDMI interfaces to their TVs, DVD players, and other devices. On Monday, management announced a new chip based on HDMI 1.3 that promises to improve the sound output in your living room. Whether this will actually result in better audio in practice is another issue, but more on this later.
Silicon Image's new SiI9135 chip will be used in audio/video receivers and supports the newest lossless audio formats (called high definition audio) like Dolby Labs' (NYSE:DLB) Dolby TrueHD, as well as a format from Digital Theater Systems (NASDAQ:DTSI) called DTS HD. A receiver that uses this chip will have a much easier setup process for users who want to listen to the TrueHD audio tracks that are currently available on some HD DVD discs (it will be available on Blu-ray at some point also). Of course, a receiver needs a source to feed it audio and video signals, and Silicon Image is also answering this need. It had previously released a chip, named the SiI9134, for use in HD DVD and Blu-ray players, which supports the improved audio and other features in the HDMI 1.3 spec.
Unfortunately for most of us who watch TV and movies in our living rooms, it's a lot harder to get great audio than great video. While having great video just requires shelling out for a good TV, a good HD DVD or Blu-ray player, and the appropriate cables, audio is strongly affected by a room's acoustics. It turns out that most rooms have poor acoustics unless they're treated by someone who knows what they're doing, and as you might expect, the treatments aren't inexpensive and add about as much visual appeal as using duct tape to pinstripe your new car. For this reason, I wonder if high-definition audio will turn out to be as popular as high-definition video.
Nevertheless, I have to wonder if Silicon Image isn't in the right place at the right time. The HDMI standard is sure to gain in popularity for use in connecting all sorts of devices to displays. The Motley Fool CAPS community seems to agree. Silicon Image has the highest possible rating, five stars, with 149 members expecting it to outperform versus a single underperform rating. I haven't dug deeply enough to buy shares for myself, but it looks like a good candidate for some more research.
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Fool contributor Dan Bloom doesn't own shares in any stock mentioned in this column. He has no plans to update his TV to one that uses HDMI 1.3, although he is sure it will prove to be popular.
