Nvidia targets handhelds with PortalPlayer buyout

November 6, 2006 – Nvidia Corp. has agreed to acquire San Jose, CA-based PortalPlayer Inc. for about $357 million in cash, in a move to help diversify Nvidia’s portfolio into handheld products, and position both companies for a digital future where mobile devices take center stage.

Terms of the deal involve a $13.50 cash payout for each outstanding share of PortalPlayer common stock, about a 19% premium to the 20-day average closing price through Nov. 3, and representing around $161 million net of cash on PortalPlayer’s balance sheet. The proposed acquisition has been approved by each company’s boards, and is subject to regulatory approval.

In a research note, FBR Research analysts Chris Caso and Elizabeth Pate noted that the acquisition “brings key software capabilities, and increases the likelihood that Nvidia will have some content in upcoming iPods.” Doug Freedman, analyst with American Technology Research, added that PortalPlayer’s SoC and application processor technology complements Nvidia’s graphics technology in the handset space, and adds “important analog design and implementation experience.”

Powering today’s mobile devices are miniature complex application processors with microprocessors, system logic, networking, and multimedia processors, noted Jen-Hsun Huang, president and CEO of Nvidia. This acquisition combines two essential technologies for future mobile devices, he said — PortalPlayer’s application processor technology targeting digital media players, and Nvidia’s graphics processing technology.

“With the products created through this combination, we intend to drive the next digital revolution, where the mobile device becomes our most personal computer,” he said, in a statement.

PortalPlayer chairman Richard Sanquini, acknowledging the company had been mulling strategic options for several months, called the Nvidia offer “compelling,” and offers a strong position in handheld GPU technologies as well as “vast resources and global reach.”

The deal represents a turnaround of sorts for PortalPlayer, which earlier this year was bumped by Samsung out of Apple’s iPod nano design, which represented as much as 90% of the company’s revenue. PortalPlayer still works with Apple for some video iPods, and also counts SanDisk as a customer with its flash memory-based music players.

Less than two weeks ago, PortalPlayer posted a sharp drop in profits and sales vs. a year ago ($1.5 million vs. $10.3 million net income, and $34.8 million vs. $57.9 million in sales, respectively), and flat in both areas vs. the prior quarter. Revenues for 4Q were projected to be flat again, with the company swinging into the red thanks to stock-based compensation charges.


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