IdaRose Sylvester: PortalPlayer dealt setback at Apple

IdaRose Sylvester at IDC posts at her personal Consumer Semiconductor Girl's Place on the Web blog about PortalPlayer's fall from Apple's grace. She points to an article at EE Times and writes:

I love the conjecture that LSI, Samsung, and the quote lists a few more, just about every company possible, might be in the next Nano. It's funny, in the way that saying Conexant, Broadcom, and STM might be in the next set-top box announced, and it's funny in that it does not mention Broadcom or TI!! It's a pretty insightful story on the business issues involved, but really light on analyzing who might actually win the design, and why.

The offending EE Times article reports that PortalPlayer said "it has been dealt a major setback at Apple Computer Inc., which is apparently switching media processor chip vendors in its iPod lines. PortalPlayer generates over 90 percent of its sales from Apple’s iPod; it makes the media processor for the MP3. But PortalPlayer said that it has recently been advised that the follow-on to its PP5021 media processor chip has not been selected by Apple for use in its new mid-range and high-end flash-based iPods. The chip company believes that the PP5021 will continue to be used in other members of the iPod family."

According to the article, "the follow-on chip was expected to be available in the second half of 2006. That chip is believed to be the PP5024, which represents the company’s entry into the MP3-based flash arena. Based on a system-in-package (SIP) technology, the PP5024 is a 130-nm design that is said to integrate the media processor, peripheral input/output (IO) controllers and analog audio and power management functions on the same device. It enables high-performance audio jukebox features such as subscription music services and database caching support in a low-power flash platform."

Craig Berger at Wedbush Morgan Securities wrote in a research note, “We previously thought that PortalPlayer would remain the processor supplier for the iPod Nano in 2006 given their operating system and scroll wheel software stickiness, and the operational risk to Apple should they decide to make a change with their processor/software supplier. We believe Samsung, SigmaTel, Actions, or LSI Logic might have won the iPod Nano chip socket, in that order of probability. It is likely that LSI Logic will not win this business with Apple, and given their lower PortalPlayer unit volumes we believe LSI's EPS may be negatively impacted by $0.02 to $0.03 per quarter starting in the June quarter.”

Berger added that this "has a disastrous impact on PortalPlayer's profitability in light of the fact that iPod Nano chip shipments comprise 70 percent of our 2007 revenue forecast for PortalPlayer."

In a Reuters article, Jeffries & Co. analyst Adam Benjamin used the "d" word again and wrote, "This is a disaster." He estimated that "Apple represented 95 percent of PortalPlayer's revenues in the December quarter," and added, "we cannot overstate enough how disastrous this announcement is to PortalPlayer's fundamentals as well as the stock price."

The dangers of generating too much of the business from one customer.....