Nvidia buys PortalPlayer to reach new business sectors

Nvidia wants to expand from its core success in selling graphics cards for desktop PCs, so the company announced Monday it will buy PortalPlayer, which makes semiconductors and software for digital music players and other devices.

Nvidia will pay US$357 million for the company, which was founded in San Jose, California, in 1999. PortalPlayer also makes the chips inside SanDisk’s Sansa c200 and e280 MP3 players, and has announced plans to support a secondary display in future notebook PCs from Acer. The company had supplied chips for Apple’s iPod music player, but reportedly lost that business in April.

Nvidia plans to use its new subsidiary to expand into new business sectors, combining its own GPUs (graphics processing units) with PortalPlayer’s microprocessors to reach users like PMPs (personal media players), PDAs (personal digital assistants), portable game players and cell phones, Nvidia President and Chief Executive Jen-Hsun Huang said in a statement. The acquisition has been approved by the boards of both companies and is now subject to the usual sorts of regulatory approvals. A date for its completion was not provided by Nvidia.

The move will augment Nvidia’s own handheld electronics division, which designs power-efficient graphics and video units for cell phones from Motorola, Samsung, Kyocera, High Tech Computer and Sony Ericsson.

The strategy is similar to the one followed by ATI, Nvidia’s former rival that agreed in July to be acquired by processor maker Advanced Micro Devices (AMD). AMD has said it plans to integrate its microprocessors with ATI’s chipsets and graphics chips, allowing it to compete better against Intel.

Despite its high-profile customer list, PortalPlayer reported weak financial results for the third quarter, listing revenue of just $34.8 million, far below the $57.9 million it had for the same period in 2005. The company earned profits of just $1.5 million for the quarter, down from $10.3 million last year.

In contrast, Nvidia listed a company record of $687.5 million revenue in the second quarter, up 20 percent from last year. However, the company has seen its stock fall in recent weeks since admitting it is investigating potential problems in its stock option practices.

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