PortalPlayer Valuation

Just taking a glance at PortalPlayer (NASD: PLAY) the company that makes guts for Apple's (NASD: AAPL) iPod.  In fact, that's basically all they do, as they expect over 90% of their revenue to be iPod related in the next year.

So why do they trade at a PE of 13, while Apple trades at PE of 38.  It can't really be because Apple has a diversity premium, since ex-iPod, they surely wouldn't command such a PE.  PortalPlayer even has $7.50/share in cash, with a share price of $26.

If you know anything about this company, or why the market is so cautious on this one compared to Apple, leave something in the comments.  My hunch would be that there's no guarantee their products will be used in future generations of the iPod, but I'm not sure.

Comments

[NYM44EVER]

One reason may well be fears that PLAY's relatively margins have to decline as AAPL pressures the company for ASP declines due to the somewhat commodity nature of the product (aka Texas Instruments, Sigmatel and others can make a very similar product if they so choose).

[Andrew Schmitt]

One major concern I have is their ability to grow their market outside of Apple for reasons other than technology. Creative, for example, doesn't want to design in silicon from a supplier that their competitor 'owns'. Apple could have such sway at PLAY that they could force CREA to been treated as second tier.

Steve Jobs isn't exactly known for his kindness to suppliers.

I saw this quite often in my prev life working in Semis with Cisco. If you had a high-IP product at Cisco w/big market share, other customers would purposely avoid using you, as they knew Cisco ultimately controlled roadmaps, allocation, etc.

Great post BTW.

[Mick Weinstein]

I'm wondering the source for this: 'they expect over 90% of their revenue to be iPod related in the next year.'?

Clearly Apple is far and away their biggest customer, but on their conference call a couple weeks ago, they noted being in the new MP3 products from SanDisk and Philips. They also sell to Samsung, BenQ and others.

Also, regarding their Preface notebook product, the CEO said: 'Revenue from this new major market could potentially reach 10% of our overall revenue in 2006.'

But they didn't break down revenue expectations by customer. Is there another source where they do?

Link to cc:
http://cestockblog.com/article/6287

Thanks,
MW

[Barry G]

Maybe you just made the case for buying PLAY.

[Formerly]

The potential of the company was unseen. There were some talks with Apple's largest competitor for their 2nd Generation Device, which would have been signed, but prior to the merger they were instructed not to enter into any agreements or else they would violate their pre-merger agreement. (It would have raised the stock price considerably.)

Go figure... The board of PLAY made the arrangements for merger relying on a "Financial adviser" from New York, who has many alias' and been involved in sketchy business transactions. It's believed that the stock price stayed low due to intentional detrimental affects on the stock price. Preparing the company for merger.