Following design wins in the Apple iPod has become as difficult as tracking the ace in a game of three-card monty. PortalPlayer is out, Samsung is in. Samsung is out, SigmaTel is in--maybe.
No one except master dealer Steve Jobs knows for sure who will win or lose the prized sockets. But even as speculation mounts, the dynamics behind the MP3 game may be subtly shifting away from Cupertino.
SigmaTel Inc., as it tries to drive flash-based players into the emerging market for portable video, is about to take legal action against at least one of the dozens of MP3 makers cropping up in China. Others foresee wireless as the next big push for a standalone product that ultimately may be subsumed by cell phones.
The latest chapter in the digital-music drama came from a Wall Street analyst's report issued last week. Apple Computer Inc. will "punish" Samsung Electronics Co. Ltd. by taking away a design win in the flash-based iPod Shuffle because an executive for the South Korean conglomerate prematurely disclosed it had won Apple's business, wrote Craig Berger, an analyst with Wedbush Morgan Securities Inc. (Los Angeles).
As a result, Berger wrote, SigmaTel will retain its existing design win in the entry-level Shuffle. But Samsung will still grab a design slot in the midrange, flash-based iPod Nano away from longtime Apple supplier PortalPlayer Inc. (San Jose).
No one confirmed, and several sources expressed doubts about the report, which Berger claims to have assembled based on input from multiple sources. "It is not surprising that Apple would 'punish' Samsung for commenting publicly about its position within the iPod, and we believe that SigmaTel is likely to be the resulting beneficiary of the Samsung executive's gaffe," Berger wrote.
A source close to the situation who asked not to be identified said Apple had never informed SigmaTel that it had lost the Shuffle business. Separately, a senior engineer at one Apple supplier said it would not have made sense for Apple to redesign the electronics of the Shuffle--which observers say Apple could drop from its product line by year's end--to accommodate a chip vendor switch.
In any case, the ongoing business is a boon to struggling SigmaTel, since Apple is projected to ship some 7.4 million Shuffles this year. "We already include 7.4 million Shuffle chips in our SigmaTel forecast for 2006, though there could potentially be some upside to these units if Apple continues to lower its Shuffle price as NAND flash costs decline," Berger said.
SigmaTel desperately needs the business. The company saw revenue slump 67 percent, to $33 million, in the first quarter from the same period in 2005. With losses currently at $27 million and expected to continue into the next quarter, Berger sees the company headed for a cash crunch.
