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PortalPlayer's Bottom Line Beats

Net income fell 78% at PortalPlayer (PLAY) in the second quarter, and would have been worse if not for a sizable tax credit and swelling interest income.

Additionally on Thursday, the company, which makes multimedia chips used in some of Apple Computer's (AAPL) iPods, announced that CEO Gary Johnson plans to resign by the end of the year. Johnson intends to pursue opportunities with private start-up companies.

Still, the news wasn't all bad. PortalPlayer's bottom line in the second quarter exceeded the Street's expectations, and the company said that it would again post better-than-expected results in the third quarter.

Investors appeared to focus on that upbeat news. In recent after-hours trading, the company's shares were up 61 cents, or 6.3%, to $10.35.

In the just-completed quarter, PortalPlayer earned $1.4 million, or 5 cents a share. That was down from the year-ago period, when the company earned $6.3 million, or 25 cents a share.

But the most recent results are a bit misleading. The company actually posted an operating loss of $1.7 million in the just-completed quarter. PortalPlayer only showed a bottom-line profit in the period thanks to $2.1 million in interest income and a $1 million tax credit.

Sales fell 22% year over year to $34.6 million from $44.6 million. Also factoring into the company's profit drop were increased costs. Marketing and administrative costs jumped 38% from the second quarter last year, while research and development expenses rose 31%.

PortalPlayer has been struggling since April, when the company announced that Apple had decided not to use its latest chips in its next generation of iPods.

Although the company has been trying to diversify its revenue, iPod-related sales accounted for about 97% of PortalPlayer's sales in the first quarter this year.

While the company's second-quarter results compare poorly with those from the year-prior period, they were better than the Street expected, at least on the bottom line.

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