Is PortalPlayer in Play?

BusinessWeek writes about PortalPlayer's(PLAY) problems after disclosing that "a forthcoming chip won't be showing up in a planned version of Apple's (AAPL ) iPod nano. PortalPlayer stock promptly shed $9.46, or nearly 42% of its value, and more than $220 million in market value."

Tayyib Shah at Longbow Research said, "I don't know what Apple's plan is for the rest of the year, if it's planning a refresh of the current generation of iPod nano, or if there's something different coming." He noted that "PortalPlayer is still selling chips to Apple for the current line of iPod nano, and in a video-playing version of the iPod."

Christopher Chaney at Stanford Financial Group said, "Apple's main competition is a bunch of no-name manufacturers, and when you're dealing with them, you have to be price competitive. PortalPlayer may have just failed to be more aggressive on the price."

Chris Crotty at iSuppli ventured that "Samsung, which makes chips that might be a suitable replacement for the PortalPlayer chip, may have offered Apple an attractive package deal involving the chip and flash memory." He said, "Samsung has gotten more aggressive with offering deals to some customers to take both chips together."

Crotty added that "Apple may have cast a disapproving eye on PortalPlayer's having landed a deal recently to supply chips to a line of MP3s made by rival SanDisk (SNDK)."

Some think PortalPlayer might be an acquisition target. Stanford Financial Group's Chaney surmised potential acquirers could be "Texas Instruments (TXN), which recently launched a media processor called DaVinci aimed at video applications, and has $5.3 billion in cash and short-term investments, Broadcom (BRCM ), which has a chip in the newest video-capable line of iPods and $1.7 billion in cash, or Marvell Technology Group (MRVL ) which has about $920 million in cash."

Chaney said, "I think among this group of chip companies there's a period of merger and acquisition activity coming up."