TMO Reports - Analysts: SigmaTel Shortfall Likely Unrelated to iPod Sales

by , 1:20 PM EST, March 30th, 2006

SigmaTel, which supplies the flash chips found in the iPod shuffle and other MP3 players, on Wednesday said that it will see a 40% revenue shortfall during the current quarter. This led to speculation that Apple's iPod sales are falling short of expectations, but Piper Jaffray analyst Gene Munster on Thursday said that SigmaTel's problems are likely unrelated to its business dealings with Apple.

"Specifically," he wrote, "SigmaTel indicated that declining NAND flash pricing caused slowing demand for portable multimedia SoCs as customers were not willing to have high-cost players in production or in store inventory when they believe manufacturing costs will continue to drop significantly.

"In addition to falling NAND flash prices, SigmaTel indicated that one of its major customers (not named) did not move to a new family of portable multimedia SoCs as quickly as anticipated and some business expected in Q1 slipped into Q2 as a result."

Mr. Munster indicated that NPD sales data provides the best way to track iPod sales. Based on the January and February numbers he has received, he believes that Apple will come in at or slightly below 9 million units sold this quarter. The Wall Street consensus is in the neighborhood of 9.5 million units.

Wedbush Morgan Securities analyst Craig Berger also weighed in on SigmaTel, downgrading its stock to "Sell" and issuing a US$5 price target. He noted: "In addition to seasonally soft MP3 player shipments in 1H'06, we believe SigmaTel is being 'sandwiched' between PortalPlayer at the high end of the MP3 chip market and Actions Semi at the low end, losing significant market share to the latter over the past year."

PortalPlayer supplies the NAND flash chips for Apple's other iPods, and there has been speculation that Apple will switch all its business to that firm and drop SigmaTel completely. Mr. Berger noted that SigmaTel is now shipping production volumes of its latest chip to Samsung and Creative, but, "unfortunately for SigmaTel, Apple's dominance of this market and its reliance on PortalPlayer suggest that there is little market opportunity for this chip in high-end devices."

Mr. Munster does not track SigmaTel's stock. He maintained his "Outperform" rating on Apple, with a $103 price target.

At 1:17 PM EST on Thursday, Apple shares were selling for $62.23, down 0.16% for the day. Meanwhile, SigmaTel's stock had plummeted 13.52% for the day, settling at $8.76.

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