PortalPlayer seen winning more business from Apple

By Matt Andrejczak, MarketWatch

SAN FRANCISCO (MarketWatch) -- Synaptics Inc., a component supplier to Apple Computer Inc.`s iPod music player line, wasn`t tapped for a role as a vendor on Apple`s latest creation, the iPod nano.

Chief Financial Officer Russ Knittel late Wednesday told investors Apple (AAPL: news, chart, profile) isn`t using its scroll-touch wheel technology in the iPod nano, which Apple unveiled at a product launch earlier in the day. See full story.

``We believe its uses an alternative solution,`` Knittel said at the Silicon Valley Bank Conference.

Synaptics (SYNA: news, chart, profile) fell 36 cents, or 2%, to $17.99.

Meanwhile, PortalPlayer Inc. (PLAY: news, chart, profile) may stand to be a beneficiary from Apple`s iPod nano, according to Wedbush Morgan Securities analyst Craig Berger.

Specifically, Berger thinks the company is the main chip supplier for the iPod nano. PortalPlayer, of Santa Clara, Calif., makes processor chips that filter audio and picture files. The iPod nano can store up to 25,000 photos.

Wedbush boosted its 2005 and 2006 earnings-per-share estimates to $1.44 and $1.55, respectively, up from $1.31 and $1.25. The broker also lifted its stock price target to $36. It has a buy rating on the stock.

PortalPlayer shares rose 27 cents, or 1%, to $28.80.

If the assumption is true, it would further increase PortalPlayer`s reliance on Apple, which already accounts for about 90% of its total revenue.

It`s unclear how much this will impact Synaptics` total sales. Apple made up about 29% of revenue for the company`s fiscal fourth-quarter ended June 30. Synaptics` technology is used in the 20-gigabyte and 40GB iPods.

``Although Synaptics components are still included on the regular iPod, that business could be at risk given the transition by Apple away from Synaptics for the nano and the elimination of the iPod mini,`` said Bear Stearns analyst Andy Neff, who maintained his financial estimates and peer perform rating on the stock.

Industry sources over the past several weeks have speculated whether Apple was shifting its click-wheel business away from Synaptics to Cypress Semiconductor (CY: news, chart, profile) , whose components are used in Apple`s latest line of PowerBook notebooks that began selling in February.

Synpatics didn`t return two calls seeking comment. A Cypress Semi representative wasn`t available for comment.

In late July, Synaptics warned that its revenue for the Septemeber quarter would be weaker than Wall Street`s forecasts due to ``lower visibility`` in the hard-disk-drive MP3 player market.

The San Jose, Calif.-based company derives about 52% of its sales from components it supplies for laptops.

Other chip suppliers affected by Apple`s latest shakeup to its iPod line include Seagate Technology (STX: news, chart, profile) and Hitachi (HIT: news, chart, profile) . The companies make the one-inch drives that power the 2GB, 4GB and 6GB iPod minis.

The iPod nano uses so-called flash memory. Seagate and Hitachi could still benefit if Apple rolls out other, larger iPod versions that incorporate hard drives, said Krishna Chander, senior storage analyst at iSuppli, a research outfit.

Seagate`s shares fell 21 cents, or 1.3%, to $16.36.