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Getting Played by Apple

When it comes to allowing other companies to share in the popularity of its iPod music players, what Apple Computer (AAPL - Get Report) giveth, it also can taketh away.

That point was made particularly clear last week, when PortalPlayer (PLAY - Get Report) announced that Apple had decided not to use the company's next-generation media chips in its upcoming iPod music players.

In response, PortalPlayer's stock bled 45% of its value in two days.

PortalPlayer's dependence on Apple was extreme: About 95% of the company's sales are iPod-related. But the small chipmaker is only one of many companies that have attempted to cash in on the iPod phenomenon.

While there's considerable money to be made doing so, as PortalPlayer has demonstrated, there's also a lot of danger, too.

"It is risky when you've got a vendor as dominant as Apple is, and you've tied your future to that vendor," says Rob Enderle, principal analyst at the Enderle Group, a technology consulting firm.

Other technology companies have had products whose dominance approximated that of the iPod or whose market strength was more powerful than Apple's, analysts say.

But Apple has long had a contentious relationship with many of its partners, says Roger Kay, founder and analyst at the consultancy Endpoint Technologies.

The company has been unapologetic about directly competing against some of those partners or cutting off relationships with little warning, he says.

"When doing business with Apple, be aware that your risk is probably higher than doing business with other people in the industry," says Kay.

An Apple representative did not return a call seeking comment about the company's relationships with vendors and partners.

Apple has had marked success with the iPod. Although sales of the device in the company's most recent quarter were lighter than expected, the 8.5 million units the company shipped was still up more than 60% from the same period a year earlier.

Perhaps more significantly, for two quarters in a row, Apple has gotten more revenue from its iPod sales than from its Macintosh computer sales.
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