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Thursday, February 02, 2006, 04:40 pm PT (07:40 pm ET)

SigmaTel left out of Apple\'s shuffle replacement plans?

In a few weeks Apple Computer is expected to unveil an update or replacement for its iPod shuffle digital music player, but current shuffle component suppliers may not be invited to the party.

In a research note released on Tuesday, American Technology Research analyst Shaw Wu said there is "potential risk" that Apple's yet-to-be announced new and improved entry-level iPod will not incorporate components from semiconductor maker, SigmaTel Inc.

The Austin, Texas-based company has been supplying Apple with audio controller chips for the iPod shuffle ever since the it was introduced in January of last year. The chips are shipped to Taipei, Taiwan-based Asustek, which manufacturers the iPod shuffle.

According to Wu, Asustek's business revenues from Apple declined from 11 percent quarter to under 10 percent in the last two quarters. The analyst believes this may also be a sign that SigmaTel's deal with Apple is slowly expiring.

Citing other reason, such as poor sell through of digital players from Creative — SigmaTel's largest customer — Wu downgraded SigmaTel shares from 'Hold' to 'Sell,' with a price target of $8.

Shares of SigmaTel traded as high as $45.50 in March of 2005, two months after Apple introduced the iPod shuffle.