Samsung swipes SigmaTel's seat in new iPod shuffle

Contrary to expectations, Apple Computer's second-generation iPod shuffle digital music player does not contain an audio decoder chip from SigmaTel, Inc.

Instead, Samsung Electronics Co. is likely to have won the socket in the new $79 clip-on device, Wedbush Morgan Securities analyst Craig Berger told SigmaTel investors in a research note on friday.

After reviewing a tear-down of the shuffle published on AppleInsider, Berger concluded that the player's processor resembles a Samsung chip recently identified as the primary component in Apple's new iPod nano players, which were introduced alongside the new shuffle about two months ago.

"The processor is an Apple logo-stamped ARM chip (#337S3300 844A), similarly named to the Apple logo-stamped ARM chip found in the new iPod Nano (#337S3291) that is known to be a Samsung chip," the analyst told clients.

Audio decoder chips from SigmaTel have been a fixture in Apple's iPod shuffle line since its inception back in January of 2005. But in February of this year, American Technology Research analyst Shaw Wu warned clients that the Austin, Texas-based chip maker was in jeopardy of losing its socket in the next-generation of the player.

During a strategic business conference two months later, an executive for Samsung was seemingly unable to contain his jubilation over a recent design win and began boasting to attendees that the company had won the role as the audio decoder supplier for Apple's next-generation iPods.

As a result of the gaffe, Berger told clients that he had increased confidence Apple would keep SigmaTel on as its supply of chips for the shuffle through the remainder of the year, as a form of punishment towards Samsung for the public outburst.

"We are removing all Apple shuffle related revenues from our SigmaTel model for 2007 and beyond, reducing our revenue and earnings-per-share estimates by $30 million and $0.25, respectively, for 2007," the analyst told clients on friday after learning of the design loss.

"We believe the socket loss was known to SigmaTel’s management at the time they provided investors with Q4 guidance and thus do not see risk to Q4 as a result of today’s news."

Berger cut his 2007 earnings-per-share estimate for SigmaTel from from $0.85 to $0.60, but maintained a "Hold" on shares of the company with a $5.50 price target.

"We do like management’s new LCD TV audio focus, and would like to see management leverage their audio processing and/or analog capabilities in more attractive end-markets," he told clients.