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Is PortalPlayer Showing Apple's Hand?

Troy Wolverton

Ready for your wireless iPod?

Reading between the lines, such a product in the short-term pipeline seems to be the implication of a recent announcement from PortalPlayer (PLAY Quote) and from what executives of the chipmaker had to say at an investor conference on Wednesday.

PortalPlayer, which provides multimedia processors for Apple Computer's iPods, announced Tuesday that it had signed a deal with CSR, a maker of WiFi and Bluetooth wireless chips, to add wireless capabilities to digital media players. The companies said they expected to have an integrated chipset available by the second half of this year.

A day later, at the Thomas Weisel Partners Technology Conference in San Francisco, PortalPlayer CEO Gary Johnson said the company expected to announce customers of the new chipset product by later this year. That same day, CFO Svend-Olav Carlsen said iPod-related sales comprised 95% of PortalPlayer's business, while predicting that such sales would be around 92% to 93% of total revenue this year.

In an interview with TheStreet.com, Johnson declined to say if or when Apple will release a wireless iPod. An Apple representative did not return a call seeking comment, but the company is typically tight-lipped about future product plans.

But it's hard to believe that PortalPlayer would launch a new product for the digital media player market without its biggest customer on board. Indeed, at the conference, Johnson said PortalPlayer had a "strong" relationship with Apple and was focusing on upgrading its technology for the iPod maker.

"I do believe we're keeping them [Apple] on the technology roadmap," Johnson said at the conference. "We're delivering the key attributes which keep them very successful."

Apple's resurgence over the last three years has been driven by the success of its iPod, which has become increasingly important to the company's overall operations. In the holiday quarter, for instance, the company sold 14 million of the digital music players and for the first time sales of the devices made up a bigger portion of total revenue than its Macintosh computers.

The iPod line has dominated the sector in part because Apple has consistently updated the line. The company introduced the shuffle, its first flash memory-based player, about a year ago, for instance. And last summer, Apple replaced the mini, a hard drive-based player that was the most popular iPod model, with the nano, a smaller, flash-based player.

Apple also has kept its iPod line fresh by adding new features. Unlike the mini, for example, the nano has a color screen. And last fall, the company added video playing capabilities to its top-of-the-line iPod models.

Analysts and enthusiasts have speculated for more than a year that Apple would soon incorporate wireless technology into its iPod line. As reported by AppleInsider and other outlets, the company filed for a patent in April 2003 for an iPod that would incorporate wireless technology. That patent application was published in November 2004.

As envisioned by PortalPlayer, the Bluetooth capabilities of the CSR chip will allow digital media player users to connect with wireless headsets. The WiFi feature would allow the players to sync wirelessly with music stored on PCs and would potentially allow customers to download and stream movies and music directly to their players.

Several companies have already released Bluetooth adapters for the iPod that allow users to connect their players without wires to headphones or car stereos. But there are not yet any WiFi adapters available for the iPod. Regardless, the presence of competitors hasn't stopped Apple in the past. The company released a combined FM tuner and remote control for the iPod line at the Macworld conference last month, even though some of its partners already were offering similar products.

PortalPlayer's chips are at the heart of two of Apple's three iPod lines, the hard-drive based iPods and the flash-based iPod nanos. And the company's presence within Apple could be growing more important; Apple recently introduced a 1GB version of the nano, which some analysts expect will eventually replace the 1GB shuffle.

Another hint of an upcoming wireless iPod was the length of time that PortalPlayer has been working on developing a wireless solution. PortalPlayer's "largest customers" start working with the company on new products 12 to 18 months before their release, Johnson said. Although PortalPlayer announced its deal with CSR earlier this week, the companies have been working together since last year, Johnson said.

Another new partnership for PortalPlayer could also have implications for Apple, though probably further down the road. The chipmaker announced a separate deal with Icera, a wireless modem company, to work on technology that would allow digital media players to connect to high-speed cellular networks. The technology could eventually pave the way for Apple's long rumored iPhone, a device that ostensibly would be a phone with iPod-like capabilities.

As part of a deal with Apple, Motorola has released several phones that can play songs downloaded from Apple's iTunes music store, but the models have been criticized for only storing a small amount of music and for lacking the iPod's ease of use.

At the conference, Johnson suggested that products resulting from the company's partnership with CSR were likely to come to market sooner than those incorporating the cell-phone technology.