SigmaTel retains grasp on iPod shuffle business?

In a research report sent to clients on Tuesday, analyst Craig Berger said he has increased confidence that SigmaTel components will remain at the heart of the low-cost iPod for the remainder of the calendar year after a Samsung executive went on record in saying that Samsung had won Apple's iPod nano business from PortalPlayer.

"It is not surprising that Apple would ‘punish’ Samsung for commenting publicly about its position within the iPod nano follow-on, and we believe that SigmaTel is likely to be the resulting beneficiary of the Samsung executive’s gaffe," the analyst told clients. "We believe the shuffle business will contribute between $0.50 and $0.75 of earnings per share to SigmaTel in 2006, somewhat dampening the firm’s total operating losses."

Berger said his model for SigmaTel already includes shipments of 7.4 million iPod shuffle-bound chips for 2006. "There could potentially be some upside to these units if Apple continues to lower its Shuffle price as NAND flash costs continue to decline," he said. According to the analyst, each million iPod shuffle units the company ships will drive an additional $0.06 of earnings-per-share.

However, Berger said there is "no way" higher iPod shuffle unit shipments can single handily rectify the firm’s dire financial straits.

"In addition to seasonally soft MP3 player shipments in [the first half of 2006], we believe SigmaTel is being 'sandwiched' between Samsung/PortalPlayer at the high end of the MP3 chip market (with Apple) and Actions Semi at the low end, losing significant market share to the latter over the past year," the analyst wrote.

Shares of SigmaTel have been met with a steady decline since last summer as competition in the digital media player space has heightened. Shares now trade in the $5 range after falling from a 52-week high of over $24 last June.

Wedbush Morgan Securities maintains a "Sell" rating on the company's shares, with a price target of $5.