Friday, March 10, 2006

iPod Nano Sales Slowing, Negative For PortalPlayer (AAPL, PLAY)

The Consumer Electronics Stock Blog covers a recent research note from Wedbush Morgan analysts Craig Berger and James Schneider that cites slowing Q2 Apple iPod Nano sales as a reason to reduce estimates for portable media chipset maker PortalPlayer (PLAY),. Key points from the note are:

  • We are reducing Q2 and Q3 EPS estimates as channel checks for NAND flash consumption, as well as other commentary, suggest that Apple’s iPod Nano shipments are likely to slow further in Q2, negatively impacting PLAY. One result of slowing orders can clearly be seen in the NAND flash market as spot pricing returns to the low end of the contract pricing range, a sign of oversupply in the market. Based on other checks we expect unit shipments will decline by –10-15% QoQ in Q2, generally worse than investors anticipate
  • We have increased confidence that Apple is likely preparing to launch a new iPod with enhanced video capabilities this spring, possibly as early as its 30th Anniversary on April 1.
  • We continue to believe PLAY will retain its socket in the soon-to-be-released Video iPod given Apple’s design schedule constraints, PortalPlayer’s software ’stickiness’, likely Video iPod device processing requirements, and the execution risk Apple faces should it change processor suppliers.
On the subject of the ‘enhanced video iPod’, Berger and Schneider wrote:
layered in at the top of Apple’s existing iPod product portfolio, likely offering a larger size LCD screen, a bigger battery, and high storage capacity to accommodate full-length video, at a retail price point of US$400-$500. We note that Apple’s existing device is called the iPod (not the Video iPod), and think Apple retains this device for customers seeking a music playback device, with the Video iPod targeted at video enthusiasts.
I wonder if this is a seasonal slowdown, maturation in the product lifecycle or something else?