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Friday, April 29, 2005, 08:00 am PT (11:00 am ET)

iPod chip supplier offers upbeat prognosis on HDD iPod market

PortalPlayer, which supplies the MP3 decoder and controller chip for Apple's hard drive based iPods, yesterday offered an upbeat prognosis on the hard drive-based digital music player market during a quarterly conference call with analyst and the media.

The company reported earnings for the March quarter of 33 cents per share on revenues of $44.5M, beating Wall Street's expectations of 20 cents on $38.3M in revenues. More than 85% of PortalPlayer revenue was from sales to Apple, the company said. For the June quarter, PortablePlayer is guiding earnings between 21 and 26 cents on revenues of $41.6M to $47.6M.

In a research note released to clients today and obtained by AppleInsider, investment research firm PiperJaffray said PortalPlayer's June guidance is positive for Apple's hard disk drive (HDD)-based iPods and that it may be consistent with a trend where consumers are consistently being up-sold to 4GB iPod minis when they intended to buy a 1GB iPod shuffle, given the minimal $50 difference in price. The firm is currently modeling HDD iPod unit shipments of 3.3M for Apple's June quarter.

Late last week, Synaptics, maker of scroll wheels for Apple's HDD iPods, provided guidance slightly below Wall Street estimates for the June quarter, based on expectations for softness in its portable music player business. Noting that this outlook is clearly contrary to PortalPlayer's bullish June quarter guidance, Senior Analyst Gene Munster said, "Given that more than 85% of PortalPlayer revenue is from iPod, while approximately 35% of Synaptics' revenue is from iPod, we believe PortalPlayer is a more relevant benchmark for potential changes in iPod unit shipments."

Examining the big picture, PiperJaffray said Apple's domination in digital music is a critical piece to the story, but is not the only potential growth avenue for the company. "Indirectly, we expect iPod to continue to be a foundation for growth in other parts of Apple's business, and we expect that by the end of 2005 more than 35m iPods will have shipped, providing Apple with a greater scope of awareness for various products," the firm said.

PiperJaffray maintains an "Outperform" rating on Apple shares with a price target of $52.