PortalPlayer (PLAY) - Get Report, a newly public company that supplies components for Apple's (AAPL) - Get Report iPod, is beginning to get attention from sell-side analysts.

On Wednesday, Needham initiated coverage of the Santa Clara, Calif., company with a buy rating; Smith Barney initiated the same day with a rating of hold.

Coming on a day when investors were locking in year-end profits, the coverage failed to move the stock. In recent trading, shares were off 24 cents, or nearly 1%, to $25.76. The company went public in November with an initial price of $17.

PortalPlayer is a "fabless" semiconductor company, which means it designs chips and related software, but outsources the actual manufacture to others. Needham analyst N. Quinn Bolton called it "the only pure play on the significant growth of HDD-based

hard-disk drive portable media players and a key supplier of components for Apple's HDD-based iPods." HDD players store data on a small hard-disk drive; other players store information using flash memory.

Bolton set a12-month price target of $31. He said that excluding net cash per share, PortalPlayer is currently trading at 16.5 times calendar 2006 estimates, a slight discount to its digital media peers. (Needham has a recent investment banking relationship with PortalPlayer).

Citigroup analyst Glen Yeung was generally positive about the stock, but had a number of concerns that kept him from giving it a buy.

He noted that 90% of PortalPlayer's sales are related to the iPod, a very heavy concentration on one vendor. He also said that the market has probably already priced in growth opportunities in the near future and suggested that investors wait for a better entry point.

"The risk of commoditization of these devices looms, just as DVD players that once sold for $300 now sell for as little as $25," Yeung said. "We are not suggesting that HDD-based media players will sell for $25 given the high cost of the hard drive itself. However maintaining rich ASPs (average selling prices) over the long-term will likely be difficult for PortalPlayer and its competitors."

(Citigroup has a recent investment banking relationship with PortalPlayer).