By Jon Fortt
November 6, 2006

It looks like graphics chip giant Nvidia might be knocking a bit harder on Apple Computer’s door.

Less than a year ago, the stock of iPod chip supplier PortalPlayer (PLAY) was trading at more than $31 per share, giving the company a market value of about $800 million. Talk about a quick drop: Today Nvidia (NVDA) announced it will buy PortalPlayer for $357 million in cash, which is roughly a bargain-basement $161 million once you discount the cash PortalPlayer already has on its balance sheet.

That’s a scant 1 percent premium over PortalPlayer’s closing price Friday.

Apparently Wall Street is confident the deal will go through: as of this writing, PortalPlayer stock is down nearly 1 percent since the announcement, and Nvidia stock is up more than 3 percent.

Losing a chunk of Apple’s (AAPL) iPod business earlier this year devastated PortalPlayer (its chip isn’t in the mid-range and high-end flash-based iPod); PortalPlayer had ridden the music player’s coattails to success. The company slashed its workforce by 14 percent in June, and announced in July that its CEO would leave.

The Nvidia purchase, meanwhile, seems to make perfect sense. Not only can Nvidia aggressively chase more iPod business, it can offer Apple package deals, selling its chips into both Macs and iPods.

Though this deal is small, and thus won’t warrant much mention from the mainstream daily business press, it could turn out to be Nvidia’s brilliant counter-move following AMD’s (AMD) purchase of graphics chip maker ATI earlier this year. If Nvidia can win a bigger chunk of iPod business and a bigger chunk of Mac business, it could make this deal pay off fast — just with added revenue from Apple.

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