When PortalPlayer’s huge cash pile is taken into account, the net acquisition price of $161m looks a steal for a company that increased net income in 2005 by 380% to $48.2m on revenue 144.5% higher at $225.1m.
But PortPlayer, only founded in 1999 and which held its IPO in 2004, has made its rapid rise as a result of supplying the platform for Apple’s iPod. Apple’s two suppliers, Inventec and Hon Hai, accounted for 93% of sales last year and PortalPlayer would be devastated iof Apple switched to another supplier.
Moreover, the company has now stumbled badly and in its third quarter reported net income down from $10.3m on revenue 43% lower at $34.9m, as it attempts to expand its customer base into suppliers of lower-priced MP3 players.
Nvidia’s shares have performed strongly of late on hopes that Intel Corp would acquire it in the wake of AMD’s $5.4bn purchase of ATI Technologies Inc in July.
Nvidia showed its ambition to move beyond the desktop into the world of mobile devices with its $70m purchase of MediaQ Inc in 2003. It says its handheld technology, which combines graphics, TV, and video, is used in many portable media devices, including phones from Motorola, Samsung, Kyocera, HTC, and Sony Ericsson.
CEO Hsun Huang said that at the core of the architectures of mobile devices were complex application processors integrating microprocessors, system logic, networking, and multimedia processors. He said that with the acquisition it was combining the two essential technologies of PMPs, PDAs, portable game players, and phones: PortalPlayer’s innovative application processor technology and Nvidia’s GPU 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.
Under terms of the deal, Nvidia will pay $13.50 cash for each PortalPlayer share, which it says is a 19% premium to the 20-day average closing price of PortalPlayer stock.