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Analyst Reiterates Apple to Make Flash-Based Player; SigmaTel Stocks Soars

First on TMO - Analyst Reiterates Apple to Make Flash-Based Player; SigmaTel Stocks Soars

by , 4:45 PM EDT, October 20th, 2004

Following the report of strong third quarter earnings Tuesday, Thomas Weisel market analyst Jason Pflaum reiterated to clients Wednesday his confidence that semiconductor maker SigmaTel will supply chips for a flash-based music player from Apple Computer that will be released before Christmas.

In an interview with The Mac Observer, Mr. Pflaum cited various sources in Asia for his continued confidence that Apple will release a flash-based player.

"I recently spent two weeks in Asia meeting with a number of folks who are in a position to know details of SigmaTel's supply chain," he said in an exclusive interview with TMO. "Based on our industry contacts, we are confident that one, Apple is planning to launch a flash-based player, and two, SigmaTel is the provider of controller chip for that device.

"Apple's entry (into the flash-based player market) could upset the OEM (original equipment manufacturing) apple cart as the first true 'branded' entrant," he wrote to clients in a report obtained independently by TMO.

Mr. Pflaum is estimating such a manufacturing deal with Apple could be a US$2 to $4 million revenue opportunity for SigmaTel. "The forecast is conservative at best," he told TMO. He said SigmaTel is prepared to meet whatever the demand Apple throws at them to make a new flash-based player. SigmaTel does not manufacturer its own chips, but outsources production to companies in Asia.

Mr. Pflaum believes the product is already in production and will be released by Apple for the Christmas buying season.

"It's a very tight supply chain, but I think this product from Apple will come out by the end of the year," he said. "That could obviously change, but we're pretty confident this will happen and you'll see product on the shelves in December."

SigmaTel officials refused comment on the report. It is Apple's policy to not comment on product strategy.

The SigmaTel-made controller is basically a 'system-on-a-chip' solution that acts as the brains of a flash-based device. Unlike Apple's hugely popular iPod and iPod mini players, the new player would presumably use solid-state flash memory, which has less capacity than hard drive-based players but can make for a lighter and cheaper player.

Mr. Pflaum said SigmaTel is currently the market leader is providing controller chips to flash-based MP3 players worldwide, with a 65% market share.

Sigmatel shares leaped Wednesday, after the semiconductor company surpassed earnings expectations for the third quarter. Excluding items, SigmaTel, based in Austin, Texas, reported earnings of US37 cents a share, which was well above projected earnings of 29 cents a share that had been forecast, on average, in a Thomson First Call survey of analysts.

Shares of SigmaTel (SGTL) closed Wednesday at $28.23, up $4.80, or 20.49%, on volume of 5.3 million shares.

Lending further credance to reports of a flash-based Apple player this quarter is the SigmaTel estimate of a fourth-quarter profit of between 35 cents and 40 cents a share, on revenue of between $55 million and $60 million. Analysts were expecting a profit of 30 cents a share on $44.9 million in revenue.

Thomas Weisel has an investment banking relationship with SigmaTel. Mr. Pflaum does not cover Apple Computer as an analyst for Thomas Weisel.

Observer Comments

Show: Subjects Only | Full Comments
Close Name:Guest
Subject: One Step at A Time…

… Apple has played this smart. They did their homework; produced a great product, the iPod; then the took the next step and made another, albeit derivative, product, the iPod mini, and now…a big step into an already crowed field, the microPod. The Apple advantage though will be name recognition and reputation. It would be hard for Creative or others to toss yet another flash based product into the ring since most people would look at it and say "So what", but Apple represents a new experience, and being flashed-based, and likely under $120 US (I'm allowing some margin here, could be under $90 depending on how they allocate capacity on the thing) more people will be willing to bite for a guenuine Apple rather than a Dull knock-off. True, if people have bought any competetor's DRM files, they'll have to burn to CD and then re-rip to ACC or MP3 to use them, but hey, now they have a real Apple. If all you want is a micro-sized player with just a few songs, think how great it will be to be able to manage them in iTunes, the market's best jukebox.

It might be slow, but Apple will be able to take a sizeable portion of the sub $100 flash market as well. Everyone thought last Christmas was the make or break timeframe, but considering the reports of MP3 adoption throughout this year, I think this year will be the crux of the trend; and if Apple does roll out a micro, then they will be perfectly positioned to ride the wave. With the publicity this summer and fall, Apple will be all the buzz, and this years stocking stuffers can bring smiles rather than dismayed frowns to all those hoping for a real iPod.

Apple sometimes makes mistakes, but I think they did their homework on this one and planned it just right. It just took "Thinking Different"!!!

Cheers friends.

Close Name:kenaustus Posts: 602 Joined: 27 Jun 2003
Subject: Better hold onto my Apple stock

Just wished I had bought more at $14.85!

This could really blow the market apart if there is sufficient inventory to even partially meet demand. Can you hear the moans in various board rooms and CEO office when they just THINK about it? The potential volume for a flash based iPod is probably 2 - 3 million for the Christmas buying season. Hope the factories are going 24 hours a day!

Close Name:Guest
Subject: iPod! Watch Out!

The going could get rough in the next couple quarters.


http://uk.news.yahoo.com/041020/323/f4wod.html

Close Name:Bleep Posts: 29 Joined: 23 Sep 2004
Subject: Wrong

That is not direct competition.

Close Name:jacrav Posts: 268 Joined: 04 Jul 2001
Subject: Yeah ! Great !

10 Mpixel phone-camera big risk for Apple … !?!?!?
Where do they put the CCD ? in an accessory case ?
And to think I just invested in a Canon EOS Rebel a few months ago !
But yet, I’m glad I haven’t bought an iPod yet, so I can get this wonder phone from Samsung (and a sackful of their 32 MB “accessory cards” to accommodate the pictures I might take-2 cards per picture or something like that ?)
Now who gets the 92 MB on-board memory ? the iPod-killer MP3 player or the MPA/QT video ?
All in all, a pretty weird article from Yahoo-UK … but thanks, anyway, Guest.

Close Name:DawnTreader -   TMO Staff Posts: 15039 Joined: 04 Jan 2002
Subject:

SGTL's market cap is now about $1 billion. The heavy move up is in response to both specualtion on a new iPod and a stellar financial quarter.

Supplies are tight, but we'll see if Apple can secure enough components to introduce a product before Christmas.

View Name:RealityCheck -   Troll Posts: 392 Joined: 06 May 2004
Subject: Remember Steve's RDF That Flash Players Are Too Small
Close Name:DawnTreader -   TMO Staff Posts: 15039 Joined: 04 Jan 2002
Subject: Re: Remember Steve's RDF That Flash Players Are Too Small

Quote
RealityCheck wrote:
It wasn't that long ago when Steve Jobs told the Mac faithful that customers really don't want a player that holds less than a 1000 songs.


6 million hard drive-based iPods later, Steve Jobs is right

For the few who would prefer a smaller capacity product, Apple is more than happy to meet their need.

Close Name:John F. Braun -   TMO Staff Posts: 233 Joined: 11 Jun 2001
Subject: Bad Steve!

Quote
RealityCheck wrote:
It wasn't that long ago when Steve Jobs told the Mac faithful that customers really don't want a player that holds less than a 1000 songs. The RDF was that customers don't want to manage what songs to put on their players. Of course now that Apple is making a flash player song capacity is no longer a problem. Wonder why Mac zealots have such a bad reputation.


That dastardly Steve Jobs! If customers have in fact stated a desire for a player that holds less than 1000 songs, he's got some nerve listening to them! Although it seems the flash technology is at a point where you can get a 4 GB module, same size as the iPod mini.

As for those darn zealots, I'd agree that those of any stripe give a platform a bad name. RC has done wonders for the reputation of Windows fanboys everywhere.

Close Name:dwallin Posts: 21 Joined: 31 Oct 2002
Subject: Flash iPod

If I were still part of Apple, I would wait until I could release a flash player with 4GB memory, then sell the best on the market...

That would fit with the market position of the iPod and the understanding of the customer need - 1,000 songs.

Just my two pennorth...

--
Dick

Close Name:Biff Posts: 1479 Joined: 08 Apr 2004
Subject: LOL

Quote
Guest wrote:
The going could get rough in the next couple quarters.

http://uk.news.yahoo.com/041020/323/f4wod.html
LOL thats one of the funniest posts anyone has made in a long time.

Close Name:Guest
Subject: Re - Flash memory

Have you guys seen the price of flash memory ? . A 4Gig module retails from US$ 400 - 500 !! . If Apple is going after the US$100 - US$150 market then a 4Gig is out of the question until cheaper flash hits the market (and that won't be before Christmas 2004) .

Just my 2 euro cents ...

Close Name:Guest
Subject: but what about the mini

a 4GB flash player would kill the iPod mini, though, unless it cost the same or more (and what would be the point of that) so it would only make sense at say 1GB. Why do that? To lock that segment of the market into iTMS, of course

Close Name:acdc1174 Posts: 723 Joined: 16 Apr 2004
Subject: I'm liking this idea more and more.

iPod Micro- a 1-2 GB flash based music system about the size of a business card. It holds 250-500 songs. It comes with earbuds, FW cable, "micro-dock" and an armband for carry at the gym or while you are out running. Priced at $100-149.00. If we see something along these lines, we might be looking at at Rio/Lyra killer.

Close Name:kenaustus Posts: 602 Joined: 27 Jun 2003
Subject: Dual chips?

What is to keep Apple from using two 2 gig chips? Results in a 4 gig micro and puts pressure of the memory makers to come to the party in the future. Lets you have both 2 and 4 gig versions and price points. 2 gigs, by the way, would handle a lot of users who don't want to have a large pile of CDs in at one time.

Close Name:Guest
Subject: Here's a thought...

I wonder if this might be a plan...

Apple makes a flash player that supports mp3, AAC and wma (the Janus crap), maybe even OGG, and is compatible with other download sites (of course giving preference to iTMS). It would be a great lead-in to the iPod for those who just want to "test the waters".

It would be the only player that is compatible with EVERYTHING out there.

/just a thought

Close Name:Biff Posts: 1479 Joined: 08 Apr 2004
Subject:

Quote
Guest wrote:
I wonder if this might be a plan...

Apple makes a flash player that supports mp3, AAC and wma (the Janus crap), maybe even OGG, and is compatible with other download sites...

Haha you're kidding right?

Close Name:Guest
Subject: even better. . .

make it USB instead (or in addition to) FW. Compatible with everyone's computer, even older ones. (I'm really needing a way to make my kid's G3 iMac usable for an iPod -- its too old to have FW and as far as I can see the only upgrade path is a Sonnet Harmoni card at about $250)

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