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Monday, November 06, 2006, 11:00 am PT (02:00 pm ET)

NVIDIA's acquisition of PortalPlayer could be iPod-driven

NVIDIA Corp's bid to acquire PortalPlayer, Inc. is surprising and the motives behind the decision, while possibly iPod-related, are not exactly clear, according to one Wall Street analyst.

On Monday, the graphics technology heavyweight said it has agreed to buy the San Jose, Calif.-based iPod chipmaker in a cash-for-stock transaction worth $357 million.

"This deal comes as a surprise to us as we believe there are other semiconductor firms that offer more technology for less money," Wedbush Morgan Securities analyst Craig Berger wrote in a research note to clients following the announcement.

The analyst, who maintains a "hold" rating on shares of PortalPlayer, said he believes the firm's intellectual property portfolio is limited when compared to other semiconductor makers in similar market segments.

"There are so many beaten-down chip stocks" whose shares are trading at just 1x sales, he wrote, "including Genesis Micro, Zoran, Pixelworks, and SigmaTel."

Berger concluded that "there may be some attractive new product technology in PortalPlayer's roadmap (wireless, next generation processor) that interests NVIDIA" that he is not fully aware of, or NVIDIA "thinks it has a better chance of penetrating Apple iPod (video) products if it owns and integrates PortalPlayer’s technology."

The analyst made no change to his estimates for PortalPlayer but raised his price target on shares of the company to $13.50 from $11.00, in line with NVIDIA's bid.