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iPod chipmaker buying Rio Technology assets

D&M Holdings Inc. announced today it has signed an agreement to sell certain intellectual property and other technology assets of the Rio MP3 player business to SigmaTel, Inc., Apple's supplier of integrated circuits for the flash-based iPod shuffle music player.

As part of the agreement, SigmaTel will hire most of the technical development personnel of Rio. Meanwhile, Rio will retain full access to its MP3 technology that it has agreed to sell to SigmaTel via a no-fee, grant-back license conditioned on its use of the SigmaTel platform in MP3 products, Tokyo-based D&M Holdings said in a statement today.

Financial terms of the deal were not disclosed.

"Engineers from Rio and SigmaTel have worked together for years improving MP3 software and creating great value for the consumer," said Vic Pacor, president of D&M Holdings. "We are transferring the Rio technical and engineering resources to SigmaTel, where they can be better leveraged through SigmaTel's considerably larger scale in the MP3 business."

"We received an attractive offer for the Rio assets that we are selling, and we have secured access to enabling technology for the MP3 category of products without carrying the full cost of the technology," Pacor added.

Some insiders speculate that the move by SigmaTel to acquire Rio's assets may be a strategic one aimed at securing its prominence in the MP3 player market. While SigmaTel supplies Apple with controller chips for the nearly 1 million iPod shuffles it sells each month, the company is rumored to have lost technology bids for forthcoming flash-based iPods.

In a research note released to clients this week, Wall Street analyst Shaw Wu said PortalPlayer — Apple's chip supplier for its hard disk drive (HDD)-based iPods — may have secured a deal with the iPod maker to supply chips for a forthcoming 2GB iPod mini that would remain true to form while utilizing flash memory as opposed to HDD technology.

SigmaTel, whose technology can also be found within the latest MP3 players made by Creative, GoVideo, Memorex, Samsung and RCA, is expected to continue to supply Apple with chips for the iPod shuffle. Compared to PortalPlayer's forthcoming offerings, SigmaTel's chips for flash players are appropriately less complex and costly.