PortalPlayer, Inc. Reports Q2 2005 Financial Results; Q2 Revenue Nearly Quadrupled Year-Over-Year

SAN JOSE, Calif.--(BUSINESS WIRE)--July 25, 2005--PortalPlayer, Inc (NASDAQ:PLAY), a leading supplier of advanced semiconductor, firmware and software solutions for the MP3 personal media player market, today announced financial results for the second quarter of fiscal 2005, ended June 30, 2005.

Net revenue for the second quarter of 2005 was $44.6 million, compared with $44.5 million in the first quarter of 2005 and $12.0 million in the second quarter of 2004. Net income for the second quarter of 2005 was $6.3 million, or $0.25 per diluted share, based on 25.1 million weighted average shares outstanding. Net income in the first quarter of 2005 was $7.8 million, or $0.31 per diluted share, based on 25.0 million weighted average shares outstanding. Net loss in the second quarter of 2004 was approximately $880,000, or $0.64 per share, based on 1.4 million basic weighted average shares outstanding.

“The second quarter of 2005 was another great quarter for PortalPlayer”

PortalPlayer reports net income (loss) and basic and diluted net income (loss) per share in accordance with GAAP and additionally on a non-GAAP basis. Non-GAAP net income, where applicable, excludes the effect of stock-based compensation charges. In the second quarter of 2005, non-GAAP net income was $6.8 million, or $0.27 per diluted share. This compares with non-GAAP net income of $8.2 million, or $0.33 per diluted share, in the first quarter of 2005 and a net income of approximately $780,000, or $0.05 per diluted share, in the second quarter of 2004.

"The second quarter of 2005 was another great quarter for PortalPlayer," said Gary Johnson, president and chief executive officer of PortalPlayer. "We successfully executed on our product roadmap and business plan, and demand for personal media players that incorporate our technology was again stronger than seasonal trends this quarter. As a result, our second quarter revenue nearly quadrupled from the second quarter a year ago, and we again generated more than $13 million in cash during the quarter. As planned, we also invested in additional engineering resources to support our strategic roadmap going forward."

"During the quarter, we smoothly ramped production on our new PP5022 device and, as of today, we reached a significant milestone of shipping more than six million of the devices. We have completed the design win activity for our customers' exciting new models intended to ship in the second half of 2005. In addition, we worked with the supply chain to prepare our operations for significant demand in the second half of the year. During the second quarter, we also accelerated our investment in innovative wireless technologies that we believe will help fuel our growth in 2006 and beyond."

"We are excited about the upcoming back-to-school and holiday season and believe we are very well positioned for significant growth in the second half of the year. We believe that our revenue for the third quarter of 2005, which is the quarter we expect to begin to recognize revenue from flash-based designs, could be in the range of $50 million to $60 million," said Mr. Johnson.

Highlights

-- PortalPlayer quickly ramped production of its PP5022 device, which is based on the 0.13 micron manufacturing process. With the strength and support of its world-class partners, United Microelectronic Corp. and LSI Logic, ramping production on the 0.13 micron process was fast and seamless. The company achieved full volume production in about three months. By adding the 0.13 micron process to its existing 0.18 micron process, PortalPlayer further extends its lead over its competition.

-- During the second quarter, PortalPlayer successfully taped out the next generation of its technology, in preparation for the 2006 product cycle.

-- The company believes that the high-capacity flash player market (one gigabyte or greater) could ramp faster than originally expected. Due to NAND flash price declines, PortalPlayer believes that market demand for high-capacity flash players has accelerated, and could now exceed 20 percent of the total flash player run rate some time before the end of 2005.

-- PortalPlayer recently acquired real estate in Hyderabad, India, where it expects to complete the construction of a new building in the second half of 2006 to support its planned future growth.

Current Financial Outlook for Third Quarter 2005

The following outlook statements are based upon current expectations. These statements are forward-looking, and actual results could differ materially.

The company expects revenue to be in the range of $50 million to $60 million. GAAP net income per diluted share for the third quarter is expected to be in the range of $0.28 to $0.36, based on approximately 26 million weighted average shares outstanding. The effective tax rate for the second quarter is expected to be about 25 percent, which takes into consideration, among other factors, the company's net operating loss carryforwards for income tax purposes. Non-GAAP net income per diluted share, which excludes approximately $520,000 of stock-based compensation charges, is expected to be in the range of $0.30 to $0.38. Operating expenses are expected to be approximately $13.2 million.

Conference Call

The company will hold a conference call at 2:30 pm Pacific Time today, July 25, 2005, to discuss the second quarter 2005 financial results. To participate, please dial (913) 981-5510 at approximately 2:20 pm PT. A live webcast of the conference call will be available via the investor relations page of the company's website at www.portalplayer.com. Access the web site 15 minutes prior to the start of the call to download and install any necessary audio software. A recording of the conference call will be available for one week, starting one hour after the completion of the call, until August 1, 2005. The phone number to access the recording is (719) 457-0820, and the passcode is 6446864. An archived webcast replay will be available on the web site for 12 months.

About PortalPlayer

PortalPlayer is a leading supplier of advanced semiconductor, firmware and software solutions for the MP3 personal media player market. These products empower consumers to easily purchase, rent, manage, listen to and watch large amounts of digital music, photos and video content. PortalPlayer is headquartered in San Jose, Calif., with offices in Kirkland, Wash., and Hyderabad, India. For more information, visit www.portalplayer.com.

Safe Harbor Statement

Except for the historical information contained herein, the statements in this press release are forward-looking statements within the meaning of the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995. These statements include, but are not limited to, statements as to our strategic roadmap, our design win activity for our customers' models intending to ship in the second half of 2005, our work with our supply chain to prepare our operations for significant demand in the second half of the year, our belief that our investment in wireless technologies will help fuel our growth in 2006 and beyond, our belief that we are very well positioned for significant growth in the second half of the year, our belief regarding our revenue for the third quarter of 2005 and our belief that we will begin to recognize revenue from flash-based designs in the third quarter of 2005, the impact of adding the 0.13 micron process on extending PortalPlayer's lead over its competition, the successful tapeout of the next generation of its technology in preparation for the 2006 product cycle, our belief that the high-capacity flash player market (one gigabyte or greater) could ramp faster than originally expected and future financial results, both GAAP and non-GAAP, including revenue, net income, operating expenses, tax rates, weighted average shares outstanding, and stock-based compensation expense. Words such as "intends," "expect," "believe," "anticipates," "going forward", "plans," "will", "prepare", "increases," "could" and similar expressions are intended to identify forward-looking statements. These forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those discussed in these statements. These risks and uncertainties include, but are not limited to, the growth of the market for personal media players, cancellation or reduction of orders, component shortages, successful development of new platforms and other products, market acceptance of our products and technologies, delays in product introductions, product defects, decreases in average selling prices, impact of technological advances, our ability to compete and other risks detailed in our SEC filings, including our Form 10-Q for the quarter ended March 31, 2005. These forward-looking statements speak only as of the date hereof. PortalPlayer disclaims any intent or obligation to update these forward-looking statements.

PortalPlayer and the PortalPlayer logo are trademarks of PortalPlayer, Inc. All other trademarks or registered trademarks are the property of their respective owners.


                          PORTALPLAYER, INC.
           CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
               (In thousands, except per share amounts)
                             (unaudited)



                                      Three Months       Six Months
                                         Ended              Ended
                                        June 30,           June 30,
                                   ----------------- -----------------
                                      2005     2004     2005     2004
                                   -------- -------- -------- --------
 Revenue                           $44,567  $12,035  $89,035  $22,231
 Cost of revenue                    25,402    6,915   50,693   13,503
                                   -------- -------- -------- --------
  Gross profit                      19,165    5,120   38,342    8,728

 Operating expenses:
    Research and development         7,900    2,986   14,251    5,594
    Selling, general and
     administrative                  3,476    1,345    6,408    2,791
    Stock-based compensation           470    1,660      854    3,637
                                   -------- -------- -------- --------
       Total operating expenses     11,846    5,991   21,513   12,022

 Operating income (loss)             7,319     (871)  16,829   (3,294)
 Interest and other income
  (expense), net                     1,119       (9)   2,027        3
                                   -------- -------- -------- --------
 Income (loss) before income taxes   8,438     (880)  18,856   (3,291)
 Provision for income taxes          2,105        -    4,714        -
                                   -------- -------- -------- --------
 Net income (loss)                  $6,333    $(880) $14,142  $(3,291)
                                   ======== ======== ======== ========

 Basic net income (loss) per share   $0.27   $(0.64)   $0.61   $(4.32)
                                   ======== ======== ======== ========
 Diluted net income (loss) per
  share                              $0.25   $(0.64)   $0.56   $(4.32)
                                   ======== ======== ======== ========

 Shares used in computing basic 
  and non-GAAP basic net income
  (loss) per share                  23,258    1,368   23,203      762
                                   ======== ======== ======== ========

 Shares used in computing
 diluted net income (loss) per
  share                             25,103    1,368   25,068      762
                                   ======== ======== ======== ========

 Shares used in computing non-GAAP
 diluted net income per share       25,103   17,161   25,068   17,006
                                   ======== ======== ======== ========

 Non-GAAP net income (1)            $6,803     $780  $14,996     $346

 Non-GAAP basic net income (loss)
  per share (1)                      $0.29    $0.57    $0.65    $0.45
                                   ======== ======== ======== ========
 Non-GAAP diluted net income (loss)
  per share (1)                      $0.27    $0.05    $0.60    $0.02
                                   ======== ======== ======== ========


                                    Reconciliation of GAAP Net Income
                                   (Loss)to Non-GAAP Net Income (Loss)
                                   -----------------------------------

                                     Three Months        Six Months
                                         Ended             Ended
                                        June 30,          June 30,
                                   ----------------- -----------------
                                      2005     2004     2005     2004
                                   -------- -------- -------- --------

 GAAP net income (loss)             $6,333    $(880) $14,142  $(3,291)
 Stock-based compensation              470    1,660      854    3,637

                                   -------- -------- -------- --------
 Non-GAAP net income                $6,803     $780  $14,996     $346
                                   ======== ======== ======== ========




(1) To supplement our consolidated financial statements presented
in accordance with GAAP, we have shown above a non-GAAP measure of net
income, which is adjusted from results based on GAAP to exclude
stock-based compensation. This non-GAAP measure is provided to enhance
the user's overall understanding of our historical financial
performance. Specifically, we believe the non-GAAP results provide
useful information to both management and investors by excluding
stock-based compensation expenses.





                         PORTALPLAYER, INC.
                 CONDENSED CONSOLIDATED BALANCE SHEET
                            (In thousands)
                             (unaudited)



                                                    June 30,  Dec. 31,
                                                     2005      2004
                                                   --------- ---------

                       ASSETS
  Current assets:
     Cash and cash equivalents                      $45,831   $58,892
     Short-term investments                         104,625    64,708
     Accounts receivable, net                        25,165    20,080
     Inventory, net                                   1,050     1,762
     Prepaid expenses and other current assets        3,379     1,872
                                                   --------- ---------
         Total current assets                       180,050   147,314
     Property and equipment, net                      1,930       661
     Other assets                                       672       521
                                                   --------- ---------
         Total assets                              $182,652  $148,496
                                                   ========= =========

        LIABILITIES AND STOCKHOLDERS' EQUITY
  Liabilities:
     Current liabilities:
       Accounts payable                             $15,585    $1,290
       Accrued liabilities                            7,204     4,195
       Deferred income                                5,013     4,024
       Deferred rent                                     15        55
       Income taxes payable                               -       479
                                                   --------- ---------
         Total current liabilities                   27,817    10,043
     Deferred rent, long-term                           231         5
                                                   --------- ---------
         Total liabilities                           28,048    10,048
                                                   --------- ---------

  Stockholders' equity:
     Common stock                                   209,619   205,468
     Deferred stock-based compensation               (6,794)   (4,799)
     Accumulated other comprehensive loss              (179)      (37)
     Accumulated deficit                            (48,042)  (62,184)
                                                   --------- ---------
         Total stockholders' equity                 154,604   138,448
                                                   --------- ---------
         Total liabilities and stockholders'
          equity                                   $182,652  $148,496
                                                   ========= =========



Contacts

PortalPlayer, Inc.
S. Olav Carlsen, 408-521-7000
or
Mozes Communications LLC
Kristine Mozes, 781-652-8875

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