PortalPlayer, Inc.--News & Events

Cash Generated From Operations Leads to Record Cash And Short-Term Investment Position of $194.2 Million

San Jose, Calif., July 27, 2006 – PortalPlayer, Inc. (NASDAQ: PLAY), a leading supplier of semiconductor, firmware and software solutions for personal media players and personal media display-enabled notebook computers, today announced financial results for the second quarter of fiscal 2006, ended June 30, 2006.

Net revenue for the second quarter of 2006 was $34.6 million, compared with $44.6 million in the second quarter of 2005, and $72.3 million in the first quarter of 2006. GAAP net income for the second quarter of 2006 was $1.4 million, or $0.05 per diluted share, based on 25.3 million weighted average shares outstanding. GAAP net income in the second quarter of 2005 was $6.3 million, or $0.25 per diluted share, based on 25.1 million weighted average shares outstanding. GAAP net income in the first quarter of 2006 was $6.5 million, or $0.26 per diluted share, based on 25.5 million weighted average shares outstanding.

On a non-GAAP basis, which excludes stock-based compensation charges and the amortization of intangibles, as well as the tax effects of those items, net income for the second quarter of 2006 was $1.9 million, or $0.08 per diluted share, based on 25.3 million weighted average shares outstanding. This compares with non-GAAP net income in the second quarter of 2005 of $6.8 million, or $0.27 per diluted share, excluding stock-based compensation charges. Non-GAAP net income in the first quarter of 2006 was $10.4 million, or $0.40 per diluted share, which excludes stock-based compensation charges and the amortization of intangibles, as well as the tax effects of those items.

"In the second quarter of 2006 we achieved a number of important milestones in our strategic roadmap for a diversified business structure. We continued to execute very well in forging relationships with leading customers in each of our target market segments," said Gary Johnson, president and chief executive officer of PortalPlayer. "We have now entered the design phase for our Preface technology. At Computex in June, we announced collaborations with Acer, ASUSTeK, Compal and Quanta, two of the largest notebook OEMs and two of the largest notebook ODMs in Taiwan. We are also in active discussions with many other leading companies.

"During the quarter, we also secured our first wireless design win in the cellular space and continued to receive positive feedback on the system performance capabilities and feature set from tier one handset manufacturers," said Mr. Johnson.

"On the financial side, revenue was in line with our guidance, and we generated cash from operations to end the second quarter with a record $194.2 million in cash and short-term investments. Through our flexible spending model and by regrouping our resources during the quarter, we were able to further reduce our spending, enabling us to achieve operating expenses in line with our guidance, even including the severance charges we incurred in the quarter," said Mr. Johnson.

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

The company expects revenue for the third quarter of 2006 to be in the range of $32 million to $42 million. Operating expenses are expected to be approximately $12.8 million. GAAP net income/loss per share for the third quarter is expected to be in the range of $0.00 to $0.08, based on approximately 25.6 million weighted average shares outstanding. Stock-based compensation charges, in accordance with SFAS 123R, are expected to be about $2.9 million, before the effects of tax. Non-GAAP net income, excluding these stock-based compensation charges as well as $340,000 of amortization of our intangible assets, and the tax effects for both items, is expected to be in the range of $0.07 to $0.17.

The company will hold a conference call at 2:30 pm Pacific Time today, July 27, 2006, to discuss the second quarter 2006 financial results. To participate, please dial (913) 981-5581 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 3, 2006. The phone number to access the recording is (719) 457-0820, and the passcode is 1470706. An archived webcast replay will be available on the web site for 12 months.

This press release includes financial measures for earnings per share and net income for the first and second quarters of fiscal 2006 and the second quarter of 2005 that have not been calculated in accordance with generally accepted accounting principles (GAAP). These differ from GAAP in that they all exclude stock-based compensation charges, and the first and second quarters of 2006 also exclude the amortization of purchased intangibles, and the related tax effects of these items. PortalPlayer uses non-GAAP additional measures to exclude certain expenses it believes appropriate to enhance an overall understanding of its past financial performance and also its prospects for the future. Non-GAAP net income per share is calculated by dividing non-GAAP net income by non-GAAP diluted weighted average shares outstanding. For this purpose, the calculation of GAAP weighted average shares outstanding for the first and second quarters of 2006 are adjusted to exclude the effects of SFAS 123R in the calculation. Under SFAS 123R, GAAP weighted average shares outstanding include the benefits of compensation costs attributable to future services and not yet recognized in the financial statements that are treated as proceeds assumed to be used to repurchase shares under the GAAP treasury stock method. PortalPlayer believes that providing these non-GAAP financial measurements is useful to both its management and investors because they provide a consistent basis for comparison of the company's financial condition and results of operations between quarters, which comparison is not influenced by stock-based charges, the amortization of purchased intangible assets, and the related tax effects of these items. The presentation of this additional information is not meant to be considered in isolation or as a substitute for earnings per share or net income calculated in accordance with GAAP. A reconciliation of these GAAP and non-GAAP financial measures is included in the attached tables.

PortalPlayer develops semiconductor, firmware and software platforms for portable multimedia products such as personal media players and personal media display-enabled notebook computers. PortalPlayer products empower consumers to quickly and easily manage, enjoy and have access to multimedia content and other forms of information. PortalPlayer is headquartered in San Jose, Calif., with offices in Kirkland, Wash., Taipei, Taiwan and Hyderabad, India.

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 regarding the expected features and functionality in new products under development with other technology providers, our ability to attain a financial model on which the company can successfully execute on its product roadmap and overall diversification strategies, our ability to execute on our product roadmap and diversification strategies, benefits and features of our Preface Developer Program, expectations regarding future financial results, including revenue, net income, operating expenses, weighted average shares outstanding, and the benefits of providing non-GAAP financial measures. 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 development or 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 period ended March 31, 2006. 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.

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