Look on just about any piece of sound equipment you own, and you'll probably see the DTS (NASDAQ:DTSI) logo -- right next to Dolby Labs' (NYSE:DLB) dual-D insignia. Although its technology is almost as widespread as that of industry leader Dolby, this digital sound company is virtually unknown to consumers.

While being No. 2 might have car rental companies trying harder, DTS apparently hasn't been trying hard enough. Its recently reported results for the fourth quarter and fiscal year showed just how difficult it's been for DTS to compete against the industry titan. For the quarter, revenues dropped 3%; for the year, they barely edged up 4%.

Earnings per share on a GAAP basis fell 63% to $0.16 for the year, compared to $0.43 per share a year ago. However, the tumble was due to a number of one-time charges as DTS restructured its business. Add those back in, along with a $0.12 charge for stock option expensing, and profits would work out to $0.54 per share. Those were some expensive charges, though, leaving the company with GAAP net income of $3 million for the year -- only 30% of its non-GAAP net income. For the quarter, the company fared no better, with a loss of $5 million on a GAAP basis compared to a $1.3 million profit last year. Again, had the company adjusted for one-time charges, the quarter would only have booked a measly $0.01 profit per share.

Notably, one of the charges was related to DTS separating its digital cinema and images business from its consumer-products side. While the company initially said that the split would allow the divisions to market DTS's individual technologies better, the board of directors has since decided to exit the digital cinema business altogether, concentrating instead on licensing the company's sound technology.

It seems to be an interesting time to depart that market, as competitors roll out digital cinema on a large scale this year. Dolby is expanding its presence, while Access Integrated Technologies (NASDAQ:AIXD) recently announced its 2,000th digital cinema system installation. DTS chose the opposite route after revenues from its digital cinema business steadily declined, after peaking at just more than $6 million in December 2005.

DTS Digital Cinema Revenues

Quarter

2005

2006

Q1

$4,796

$5,427

Q2

$5,138

$4,900

Q3

$5,742

$4,768

Q4

$6,068

n/a
Source: DTS SEC filings.

Perhaps focusing on its intellectual property is the way to go for DTS. As mentioned earlier, its technology is ubiquitous, and while Dolby's sound technology will be the standard on next-generation DVD formats and HDTV, DTS will also be along for the ride. But after spending tens of millions of dollars over the past few years cobbling together a digital cinema and imaging division, abandoning that effort so abruptly sounds like an expensive learning curve.

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Fool contributor Rich Duprey owns shares of Dolby Labs, but does not own any of the other stocks mentioned in this article. You can see his holdings here. The Motley Fool has a disclosure policy.