PortalPlayer rides popularity of the iPod
Nov 15, 10:25 AM EST
NEW YORK (AP) -- PortalPlayer Inc. is hoping it doesn't fall from Apple's tree.
PortalPlayer, which makes components for Apple Computer Corp.'s iPod music player, plans to go public this week, selling 6.25 million shares at $11 to $13 a share.
People familiar with the offering say demand for the shares has been strong, driven largely by the success of the iPod.
"It's on everybody's radar screen now," said Sal Morreale, who tracks initial public offerings for Cantor Fitzgerald LP in Los Angeles. "People want a piece of the iPod, and they haven't had too many chances."
PortalPlayer, based in Santa Clara, Calif., is a chip maker for personal media players. But its business is highly concentrated: 93 percent of its sales go to Shanghai's Inventec Appliances Co., which assembles iPods.
So far, PortalPlayer's sales haven't translated into profits, though its net losses have narrowed. Over the first nine months of this year, PortalPlayer lost $131,000 on revenue of $47.8 million, according to filings with the Securities and Exchange Commission. In the same period a year ago, it booked $12.8 million in revenue, for a $7.3 million loss.
Investors seem drawn by the continued growth potential of the iPod, which has become a must-have for some. In October, Apple said it sold 2 million iPods in its fiscal fourth quarter, up strongly from the 836,000 players sold in the same quarter a year ago. The sales helped Apple beat earnings expectations by a wide margin.
Since then, companies involved in the iPod have seen their stocks boom too.
Synaptics Inc., which makes the iPod's signature scroll wheel, is trading up about 45 percent. Audible Inc., which provides some of the digital content played on the iPod, is up 43 percent.
So there's plenty of upside to being involved in the iPod, but PortalPlayer notes in its SEC filings that the relationship with Apple makes it vulnerable. Apple could choose another supplier, or develop some of the components itself. "Any of these events would significantly harm our business," PortalPlayer said in SEC filings.
Even if Apple continues to use PortalPlayer products, the company still would be hurt if consumers stop buying iPods.
But most potential investors appear to think the current iPod success outweighs any future risks, Morreale said.
"You just mention iPod and folks go nuts," he said. "It's that simple."
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