TMO Reports - Analysts: PortalPlayer Likely to Retain iPod Business

by , 12:55 PM EST, February 22nd, 2006

Wedbush Morgan Securities analysts Craig Berger and James Schneider on Wednesday released a research report assessing the likelihood that PortalPlayer could lose the video iPod chip audio processor business to Broadcom, which supplies the device's video processor and has developed an integrated solution. Speculation abounds that a revamped video iPod is waiting in the wings, possibly headed for an introduction at Apple's Feb. 28 media event.

Mr. Berger and Mr. Schneider, however, think it's unlikely Apple will refresh the video iPod this spring, given the company's history of updating iPods on an annual basis. They also don't see Apple moving the video iPod to a single chip solution, dropping PortalPlayer in favor of Broadcom, as their analysis of the iPod's power consumption shows that little would be gained in terms of battery power savings. The LCD and hard drive consume the "lion's share" of the battery power, according to the analysts.

Broadcom does have a new processor that some have speculated could replace the two-chip solution, but the analysts said it "does not appear well-suited to drive both the video processing and applications processing within the Video iPod ... As the [new processor] entered production in Q3 '05, it seems unlikely that Broadcom's next-generation chip will be ready for a spring product launch. Furthermore, a new operating system would have to be written and debugged very quickly."

The analysts pegged PortalPlayer's chances of retaining its position in the video iPod this year at 80%, noting: "There is a good chance the firm will 'deliver the goods' for video processing with its next-generation chip." The company, through its partnerships with other firms, could integrate Bluetooth and/or Wi-Fi into its processor, according to a recent report, but the analysts don't see that happening before next year. Even then, it "will likely remain a discrete solution (not integrated with the applications processor nor the video processor)," they wrote.

However, given their analysis of low-power Wi-Fi processors for portable use, Mr. Berger and Mr. Schneider believe that the addition of such functionality is feasible. "We estimate that a user could download the equivalent of two audio CDs on such a device while reducing the effective battery life by less than 10%," they wrote.

PortalPlayer also supplies the processor that drives the iPod nano, and the analysts believe its position in that device is "secure, given the use of flash memory. We think this reduces the likelihood of broad video penetration in that device in the near term, which argues for no radical device redesign. This suggests PortalPlayer remains incumbent here."

SigmaTel, however, supplies the chip for the iPod shuffle, which the analysts believe "Apple will refresh later this year, adding basic navigation capabilities as well as a possible display." They see the company retaining that business, although they believe it's possible PortalPlayer could pick up those units too, "likely with one of its legacy chips."