Apple Punishes Samsung For iPod Gaffe: Analyst

A Samsung executive's boast that his firm had won new iPod business caused Apple to get its chips from another supplier, one analyst is saying.
SAN JOSE, Calif. — After an apparent “gaffe” by an executive from Samsung Electronics Co. Ltd., Apple Computer Inc. has reportedly “punished” the South Korean semiconductor giant by maintaining its MP3 chip alliance with SigmaTel Inc., according to an analyst.

Despite signs that Samsung was taking over the iPod chip business, struggling SigmaTel has managed to hold on to its key chip design within Apple’s current — and new — iPod Shuffle MP3 line, said Craig Berger, an analyst with Wedbush Morgan Securities Inc. (Los Angeles).

At present, Apple (Cupertino, Calif.) uses SigmaTel’s media processor chip within its current iPod Shuffle product, an entry-level, flash-based MP3 player. Apple also uses PortalPlayer Inc.’s media processor chip within its current iPod Nano line, a mid-range, flash-based MP3 player.

But there have been signs that both SigmaTel and PortalPlayer (San Jose) lost the business at Apple. Last month, an executive from South Korea’s Samsung (Seoul) said the company won the MP3 media processor business for Apple’s next-generation iPods.

At the time of this disclosure, “there was a good possibility that Samsung won both the [next-generation] Shuffle and Nano businesses,” Berger said.

Samsung will apparently supply the MP3 media processor chip for the next-generation iPod Nano, but the South Korean company has reportedly lost its footing in the Shuffle business.

“We believe SigmaTel is likely to maintain its position within the Apple Shuffle MP3 player for 2H '06, a relief for existing investors,” Berger said in a report.

“We have increased confidence that SigmaTel will continue supplying the MP3 processor into the Apple Shuffle in 2H ’06, after a Samsung executive commented publicly that Samsung supplanted PortalPlayer in the next-generation iPod Nano,” he said in the report.

“It is not surprising that Apple would ‘punish’ Samsung for commenting publicly about its position within the iPod Nano follow-on, and we believe that SigmaTel is likely to be the resulting beneficiary of the Samsung executive’s gaffe,” he added.

The business could be a boom for struggling SigmaTel, as Apple is projected to ship some 7.4 million Shuffles in 2006. “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 continue to decline,” he said.

On the downside, SigmaTel continues to lose market share to China’s Actions Semiconductor Co. Ltd. (Zhuhai) on the low end of the MP3 business. “SigmaTel's new STMP3600 chip is unlikely to reverse this slide,” he added.

"The SigmaTel STMP3600 System on Chip (SoC) provides customers the ability to design and develop digital multimedia players with longer battery life, smaller form factor designs and a higher level of processing power all at a lower overall system cost," according to SigmaTel (Austin, Texas).