BusinessWeekis Alex Salkever has turned his attention this week to one of Appleis suppliers, PortalPlayer. The company supplies the chip that powers both the iPod and the iPod mini. With Appleis massive iPod success, one could be excused for thinking PortalPlayer, a fabless chip maker, might be doing well, making its impending IPO attractive. According to Mr. Salkever, thatis not necessarily the case. From the article:
Should investors dive into this one? Not so fast, analysts say. No one doubts that PortalPlayeris technology is innovative, but the business of designing semiconductor chips is dicey. Whatis more, the concern may have trouble protecting its intellectual property, and competition is building.
And then there is the fact that, despite iPodis runaway success, PortalPlayer still hasnit managed to turn a profit. Buying in at any price could carry a high risk, since the outfit relies on Apple for the vast majority of its sales.
Apple CEO Steve Jobs "is a tough negotiator...we have seen that with Disney," notes Tom Taulli, an IPO expert with Currentofferings.com, who adds that PortalPlayeris "margins may compress because of that." In fact, PortalPlayer has yet to strike a long-term contract with Apple and operates on a short-term, purchase-order basis. Thatis not unusual, but it does mean that Apple has the potential to bring PortalPlayeris gravy train to an abrupt halt.
There is much more in the full article at BusinessWeek.