Happy Tune
PortalPlayer, Inc. (PLAY: Nasdaq)
By JMP Securities ($26.66, Dec. 20, 2005)
WE ARE INITIATING COVERAGE of PortalPlayer, Inc. with a Market Outperform rating and a $32 target price based on 19X our calendar year 2006 earnings per share estimate of $1.65.
PortalPlayer is a leading provider of advanced, system-level semiconductor solutions for portable media player devices such as Apple's iPod.
We believe that PortalPlayer is attractively valued at 16.2x CY06 earnings relative to its secular growth rate of 20% driven by the high-growth iPod media player market.
PortalPlayer has enjoyed spectacular growth driven by its role as the key supplier of the system-level media player chip in Apple's (more than 90% of revenues) successful iPod music and video players.
PortalPlayer's revenues are likely to grow 28% in 2006, with operating income growing 22%; earnings are likely to grow only 7-8% due to a higher tax rate and higher share count.
At the upcoming Consumer Electronics 2006 convention in January, PortalPlayer is likely to unveil a significant expansion of its media player chip efforts likely targeted at the cell phone market.
While we believe that digital media player capabilities will become pervasive in various portable/handheld devices such as MP3 players, cell phones, portable video consoles, etc., PortalPlayer is likely to retain its high-end dominance by aligning itself with Apple's runaway software-rich iPod product family.
We also favor the company's strategy of focusing on higher-end media player markets such as wireless media players, while staying away from the low-end flash MP3 player market where pricing is commoditized.
We believe that PortalPlayer's system-on-chip design architecture, high-performance dual-core processors, software, and firmware are key elements of Apple's software-rich, user-friendly iPod experience. As such, the entry barriers will likely remain high for competitors such as SigmaTel (SGTL) to displace PortalPlayer in high-end media player designs.
Furthermore, the platform strategy adopted by PortalPlayer allows its customers such as Apple, iRiver, Philips, Sirius Satellite Radio, etc., to offer highly differentiated media players with a custom-designed look and feel that offer a compelling use experience. We believe that PortalPlayer is likely to achieve a similar level of success in new markets such as high-end cell phones due to its software-rich customization capabilities for large media files storage/retrieval, security, user interface, and wireless interface support.
--Krishna Shankar |
