PortalPlayer, Inc. Reports Third Quarter Financial Results

Critical Development Milestone Successfully Achieved for New Product Family

Cash Generated From Operations Leads to Record Cash And

Short-Term Investment Position of $195.5 Million

SAN JOSE, Calif. – October 26, 2006 – PortalPlayer, Inc. (NASDAQ: PLAY), a leading supplier of semiconductor, firmware and software solutions for personal media players and personal media display-enabled computers, today announced financial results for the third quarter of fiscal 2006, ended September 30, 2006.

Net revenue for the third quarter of 2006 was $34.8 million, compared with $57.9 million in the third quarter of 2005, and $34.6 million in the second quarter of 2006. GAAP net income for the third quarter of 2006 was $1.5 million, or $0.06 per diluted share, based on 25.4 million weighted average shares outstanding. GAAP net income in the third quarter of 2005 was $10.3 million, or $0.40 per diluted share, based on 25.5 million weighted average shares outstanding. GAAP net income in the second quarter of 2006 was $1.4 million, or $0.05 per diluted share, based on 25.3 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 third quarter of 2006 was $3.4 million, or $0.13 per diluted share, based on 25.4 million weighted average shares outstanding. This compares with non-GAAP net income in the third quarter of 2005 of $11.0 million, or $0.43 per diluted share, excluding stock-based compensation charges. Non-GAAP net income in the second quarter of 2006 was $1.9 million, or $0.08 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 third quarter of 2006 we executed well on our strategic technology roadmap for a diversified business structure,” said Gary Johnson, president and chief executive officer of PortalPlayer. “In our personal media player business, we continued to ship products to our largest customer for its new video-enabled models, we expanded our relationship with SanDisk to include its Sansa c200 series of media players, and we continued to market our technology to a broader customer base. We expect revenue from our Preface product line to ramp in 2007 as manufacturers introduce their innovative designs throughout the year. Also during the quarter, we successfully taped out technology for our next generation family of products. For the first time we used a ‘customer owned tooling’ manufacturing flow, and are planning to sample the new chipset during the fourth quarter of this year, ahead of the January Consumer Electronics Show in Las Vegas.

“On the financial side, revenue and net income were in line with our guidance, and we generated cash from operations to end the third quarter with another record of $195.5 million in cash and short-term investments. We further reduced our spending, as expected, while continuing to focus on our strategic programs. Our projected fourth quarter spending level – before stock and amortization charges – is now expected to be about 40 percent less than it was in the fourth quarter a year ago,” said Mr. Johnson.

Highlights

Current Financial Outlook for Fourth Quarter 2006

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 fourth quarter of 2006 to be about the same as in the third quarter, with a range of $31 million to $38 million. Operating expenses, before stock-based compensation charges and amortization of intangible assets, are expected to be approximately $11.5 million. GAAP net income/loss per share for the fourth quarter is expected to be in the range of a loss of $0.03 to income of $0.05 per share, based on approximately 25.7 million weighted average shares outstanding. Stock-based compensation charges, in accordance with SFAS 123R, are expected to be about $2.7 million, before the effects of tax. Non-GAAP net income, excluding these stock-based compensation charges as well as $340,000 of amortization of intangible assets, and the tax effects for both items, is expected to be in the range of $0.05 to $0.14 per share.

Conference Call

The company will hold a conference call at 2:30 pm Pacific Time today, October 26, 2006, to discuss the third quarter 2006 financial results. To participate, please dial (913) 981-5543 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 November 2, 2006. The phone number to access the recording is (719) 457-0820, and the passcode is 8563431. An archived webcast replay will be available on the web site for 12 months.

Non-GAAP Financial Measures

This press release includes financial measures for earnings per share and net income for the second and third quarters of fiscal 2006, the third quarter of 2005, and year to date through the third quarter of each respective year 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 all periods in 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 second and third 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.

About PortalPlayer

PortalPlayer develops semiconductor, firmware and software platforms for portable multimedia products such as personal media players and personal media display-enabled 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. 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 regarding the expected features and functionality in new products under development, our strategic roadmap, our relationships with customers and our position in the market, expected Preface revenue, chipset and platform sampling, fourth quarter spending, our ability to implement a more cost-efficient manufacturing flow, our ability to utilize the technology acquired in AVCcore acquisition in developing future products, expectations regarding future financial results, including revenue, net income, operating expenses, tax rates, 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 and personal media display-enabled computers and associated devices, cancellation or reduction of orders, manufacturing and supply risks, 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 June 30, 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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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, amortization of acquired intangible assets and income taxes associated with certain non-GAAP adjustments. For non-GAAP earnings per share, we have also adjusted our diluted share count for the impact of applying SFAS 123R. This non-GAAP measure is provided to enhance the user’s overall understanding of our historical financial performance.

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, amortization of acquired intangible assets and income taxes associated with certain non-GAAP adjustments. For non-GAAP earnings per share, we have also adjusted our diluted share count for the impact of applying SFAS 123R. This non-GAAP measure is provided to enhance the user’s overall understanding of our historical financial performance.