PortalPlayer, Inc.--News & Events

SAN JOSE, Calif. – Jan. 26, 2006 – PortalPlayer, Inc. (NASDAQ: PLAY), a leading supplier of semiconductor, firmware and software solutions for personal media players and secondary display-enabled notebook computers, today announced financial results for the fourth quarter and fiscal year ended December 31, 2005.

Net revenue for the fourth quarter of 2005 was $78.2 million, up 35 percent from $57.9 million in the third quarter of 2005 and up 75 percent from the $44.7 million in the fourth quarter of 2004. GAAP net income for the fourth quarter of 2005 was $23.8 million, or $0.92 per diluted share, based on 25.8 million weighted average shares outstanding. This included $664,000 of stock-based compensation charges and also a benefit of $8.6 million related to the release of a portion of the valuation allowance against deferred tax assets. Excluding both of these effects, non-GAAP net income was $15.9 million, or $0.62 per diluted share.

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 fourth quarter of 2004 was $10.5 million, or $0.50 per diluted share, based on 21.1 million weighted average shares outstanding. On a non-GAAP basis, which excludes stock-based compensation charges, net income for the third quarter was $11.0 million, or $0.43 per diluted share, and non-GAAP net income for the fourth quarter of 2004 was $11.2 million, or $0.53 per diluted share.

Net revenue for fiscal 2005 was $225.2 million, up 143 percent from $92.6 million for fiscal 2004. Net income for fiscal 2005 was $48.2 million, or $1.90 per diluted share, based on 25.4 million weighted average shares outstanding. This compares with a net income of $10.4 million, or $0.57 per share, based on 18.1 million weighted average shares outstanding in fiscal 2004. Non-GAAP net income for fiscal 2005 was $41.8 million, or $1.65 per diluted share, excluding stock-based compensation charges as well as the fourth quarter tax benefit mentioned above. This compares with a non-GAAP net income of $16.2 million, or $0.89 per share in fiscal 2004.

"2005 was an outstanding year for PortalPlayer," said Gary Johnson, president and chief executive officer of PortalPlayer. "We had record annual revenue growth, increasing from $93 million in 2004 to $225 million in 2005, and we increased profitability substantially year-over-year. The fourth quarter was another record revenue quarter for us, with impressive shipment activity throughout the entire quarter, including the last three weeks, which we recognize as deferred revenue. In addition, we made significant strides in advancing our technology. During the year, we introduced innovative new technologies such as our PP5022 family, which tripled battery life for media players, and the PP5024, our first fully integrated system-in-package. As a result of these devices, we extended our leadership position in the personal media player market to now also include feature-rich flash-based players, in addition to hard drive-based players, and successfully launched our new PortalPlayer Preface technology for a major new market – personal media displays.

"We expect 2006 to be another year of significant growth for the feature-rich segment of the personal media player market. In addition, we expect our new PortalPlayer Preface technology to help us diversify our customer and revenue base in 2006 and beyond," 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 to be in the range of $70 million to $80 million. Operating expenses are expected to be approximately $18.2 million. The effective tax rate for the first quarter is expected to be about 35 percent. GAAP net income per diluted share for the first quarter is expected to be in the range of $0.28 to $0.38, based on approximately 26.5 million weighted average shares outstanding. Stock-based compensation charges, in accordance with SFAS 123R, are expected to be about $1.8 million net of tax. Non-GAAP net income, excluding these stock-based compensation charges, is expected to be in the range of $0.35 to $0.45.

The company will hold a conference call at 2:30 pm Pacific Time today, January 26, 2006, to discuss the fourth quarter and 2005 year end financial results. To participate, please dial (913) 981-5533 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 February 2, 2006. The phone number to access the recording is (719) 457-0820, and the passcode is 8165640. 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 our results for the fourth quarter and fiscal year of 2005 that have not been calculated in accordance with generally accepted accounting principles (GAAP). These differ from GAAP in that they exclude stock-based compensation charges as well as the fourth quarter tax benefit mentioned above. PortalPlayer believes that providing these non-GAAP financial measurements is useful to its 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 and one time tax benefits. 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 secondary 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 as to the expected growth of the feature-rich segment of the personal media player market, the benefits of our new PortalPlayer Preface technology, the diversity of our future customer and revenue base, launch and availability of Windows Vista and Windows SideShow, the availability of notebook computers with our Preface technology platform, benefits of integrating our Preface technology platform functionality in notebook computers, the launch of future company products incorporating the Java technology and the broadening of our product offering, and expected growth and diversification in 2006, expectations regarding future financial results, including revenue, net income, operating expenses, tax rates, weighted average shares outstanding, and stock-based compensation expense, 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 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 September 30, 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.

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