BusinessWeek’s Alex Salkever has turned his attention this week to one of Apple’s suppliers, PortalPlayer. The company supplies the chip that powers both the iPod and the iPod mini. With Apple’s massive iPod success, one could be excused for thinking PortalPlayer, a fabless chip maker, might be doing well, making its impending IPO attractive. According to Mr. Salkever, that’s not necessarily the case. From the article:
Should investors dive into this one? Not so fast, analysts say. No one doubts that PortalPlayer’s technology is innovative, but the business of designing semiconductor chips is dicey. What’s more, the concern may have trouble protecting its intellectual property, and competition is building.
And then there is the fact that, despite iPod’s runaway success, PortalPlayer still hasn’t managed to turn a profit. Buying in at any price could carry a high risk, since the outfit relies on Apple for the vast majority of its sales.
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Apple CEO Steve Jobs "is a tough negotiator…we have seen that with Disney," notes Tom Taulli, an IPO expert with Currentofferings.com, who adds that PortalPlayer’s "margins may compress because of that." In fact, PortalPlayer has yet to strike a long-term contract with Apple and operates on a short-term, purchase-order basis. That’s not unusual, but it does mean that Apple has the potential to bring PortalPlayer’s gravy train to an abrupt halt.
There is much more in the full article at BusinessWeek.