Schaeffer's Market Observation Features Apple Computer, Synaptics, PortalPlayer, and SigmaTel

Business Wire, March 17, 2005

CINCINNATI -- Today's Market Observation features Apple Computer (NASDAQ:AAPL), Synaptics (NASDAQ:SYNA), PortalPlayer (NASDAQ:PLAY), and SigmaTel (NASDAQ:SGTL). Schaeffer's Market Observations are market-based reports that provide insight and analysis from a unique and unbiased perspective. Market Observations are published on www.SchaeffersResearch.com - the home of Bernie Schaeffer and Schaeffer's Investment Research. To receive a free email notification each time a new commentary is written about one of the featured stocks or any of your favorite stocks, click on the following link: http://www.schaeffersresearch.com/addinfo.

Attack of the iPod People

Apple Computer (NASDAQ:AAPL) is back in the news today after one brokerage firm lifted its expectations for sales of the company's iPod Shuffle. Goldman Sachs doubled its estimate for the number of AAPL iPod Shuffle portable digital music players sold in the March quarter to 1.8 million units. As a result, the broker lifted its quarterly earnings forecast by two cents to 24 cents per share and full-year expectations to $1.12 per share from $1.08 per share. The broker stated that "with competition unlikely to come from 'me too' MP3 players, it will probably take something like Sony's PlayStation portable to pose a challenge to iPod long term."

When AAPL released first-quarter earnings on January 12, the firm stated that it had shipped 4.58 million iPods during the quarter, a 525-percent increase in iPods shipped over the year-ago quarter. The company is slated to step into the earnings confessional on April 13. According to Zacks, the Street is forecasting a gain of 22 cents per share, up from its seven-cent profit for the same period a year ago. Furthermore, AAPL has surpassed the consensus estimate in each of the past five quarters by an average of 35 percent.

The MP3 player market continues to grow at an astounding rate; not only for AAPL, but there are now several other heavy hitters that have thrown their hats into the ring. AAPL shares were shaken up a bit recently when Napster lifted its revenue outlook for the fourth quarter. Investors have grown concerned that the firm has begun to slice away at AAPL's massive market share.

Furthermore, an executive from Samsung announced today that global shipments of MP3 players are expected to reach 35 million to 45 million units this year, and are forecast to rise to 55 million units in 2006 due to growth in demand for both flash memory and hard disk drive based products. Samsung entered the MP3-player party relatively late, but still expects sales to spike between $700 million and $750 million this year, versus sales of roughly $250 million in 2004. The firm aims to sell more than five million MP3 players this year, compared to 1.7 million units in 2004.

Of course, Samsung and AAPL aren't alone in this arena. SanDisk, Sony, Dell, Creative Technology, and Toshiba are just a few of those struggling to take a bite out of AAPL's pie. However, my point of interest isn't the final product that is attracting swarms of consumers. What has caught my eye recently are the suppliers of parts for these nifty little devices.

Synaptics

According to Hoover's, Synaptics (NASDAQ:SYNA) designed the popular scroll wheel that controls AAPL's iPod. Overall, the firm develops input products for portable electronic devices including notebook and handheld computers, digital music players, and web-enabled phones. The company's TouchPad and TouchStyk systems control a computer's cursor, much like a mouse does for desktop PCs.

The shares have struggled recently, falling below both their short- and intermediate-term trendlines. However, the stock's pullback has left it resting on support at its 20-month moving average, which it has yet to finish a month below.

Click the following link to see a Monthly Chart of SYNA since June 2003 with 20-Month Moving Average: http://www.schaeffersresearch.com/wire?ID=12758.

Sentiment toward the shares is leaning toward the bulls' camp, but it appears there is still ample room for traders to jump on this security. The equity's Schaeffer's put/call open interest ratio (SOIR) of 0.48 sits near the middle of its annual range with a percentile rank of 54. On the other hand, short interest shot 68 percent higher in February to 3.5 million shares. Not only does this spike mark a new annual high, but it is also more than 14 percent of the security's total float. Wall Street has yet to really jump on this stock, as just two analysts follow SYNA (with one "buy" and one "hold"). The equity could see additional upside as more brokerage firms initiate coverage of the stock.

PortalPlayer

PortalPlayer (NASDAQ:PLAY) designs microchips and related software that allow users to download, play, record, and manage music on digital music players, including AAPL's popular iPod. Partnered with RealNetworks and SanDisk, among others, PLAY sells to electronics makers.

After a pullback to a near-term low at 16.15, the shares have rebounded into resistance at the 25 level. This region marks a 50-percent retracement of the security's decline from its November 29 high (at 33.45) to its near-term low. However, this recent roadblock has allowed the security to consolidate into potential support at its 20-day moving average.