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iPod chip maker lacks long-term contract with Apple

BusinessWeek’s Alex Salkever notes that PortalPlayer, the company that designs the chips and software for the iPod, lacks a contract with Apple, has no profits, and may face competition. “PortalPlayer filed to go public in August. Based on the iPod’s sales momentum, the outfit should be one of the most anticipated tech IPOs of 2004. 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… In fact, PortalPlayer has yet to strike a long-term contract with Apple and operates on a short-term, purchase-order basis.”

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