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PortalPlayer, Inc. Adopts New Indian Offshore Development Model

New Business Model Will Bring Customers Added Flexibility and Scalability

Hyderabad, India – June 25, 2003 – PortalPlayer, Inc., a leading supplier of digital audio platforms for consumer electronics, today announced plans to invest resources and funds in “Pinexe Systems,” a newly formed company launched today at a press conference in Hyderabad, India. PortalPlayer’s local development team will become a part of Pinexe Systems, a provider of outsourced design and development services. The move will allow PortalPlayer to continue its technology innovation and serve its customers with its existing development team within a highly scalable, responsive and cost-effective business model.

Led by high-profile entrepreneur, J.A. Chowdary, the former president of PortalPlayer’s Indian subsidiary and a well-known 25-year veteran of the Indian IT industry, Pinexe Systems will offer a variety of VLSI/ASIC and embedded system design and development services. To serve companies like PortalPlayer, Pinexe Systems plans to establish dedicated offshore development centers (ODCs). As a result, Pinexe Systems will offer its customers the security, stability and consistency of an in-house development team, with the flexibility, scalability and reduced overhead costs of an outsourced supplier. PortalPlayer’s development team will join the first Pinexe Systems ODC and will be dedicated to PortalPlayer and its customers’ custom development activities.

“Our Pinexe Systems’ ODC will further strengthen PortalPlayer’s position as we continue to gain market share in the digital audio market,” said Gary Johnson, president and CEO, PortalPlayer, Inc. “We serve a rapidly growing consumer electronics segment which can often have unpredictable and cyclical demand.

By moving to the ODC model, we will give our customers access to a highly skilled development team that is capable of scaling up or down as demand shifts, and yet will allow us to maintain the lowest possible overhead cost.”

India has become an ideal region for outsourced design and development due to its proximity to Asia, its core technology expertise, and the large pool of available engineering talent. Pinexe Systems was established to capitalize on the outsourcing trend to India which has doubled since 2002. PortalPlayer’s development team will become employees and part owners in the new venture, and will therefore have an opportunity to enjoy the rewards of ownership in both the growing trend toward outsourcing in India, and the tremendous growth predicted in the compressed digital audio devices (MP3 player) market.

A recent report from IDC (IDC, Worldwide and U.S. Compressed Audio Player Forecast and Analysis, 2002-2007: MP3 Everywhere (IDC 29301)) forecasts that the worldwide market for MP3 players, the end products that are enabled by PortalPlayer’s technology, will reach $44 billion in revenues by 2007. The report predicts that broad consumer acceptance and the availability of a variety of form factors will combine to drive demand.

“Moving to an ODC model will streamline the design cycle for MP3 devices and promote rapid product development,” said Susan Kevorkian, senior analyst with IDC’s Consumer Devices and Technologies Group. “Innovations like these by key technology providers will help fuel MP3 player market growth by allowing device manufacturers to drive down development costs and offer new device form factors and feature sets.”

PortalPlayer has continuously adopted innovative business models to best deliver its technologies to its customers. Unlike traditional semiconductor companies who focus on delivery of silicon alone, PortalPlayer’s unique approach includes a complete platform for digital audio and entertainment. From silicon, to firmware and PC applications, PortalPlayer has developed a completely integrated platform to help customers bring a variety of new types of battery- and line-powered music recording and playback systems to market.

“PortalPlayer has proven its ability to adapt its business model to the needs of its customers,” said Charles Wolf, analyst with Needham and Company. “The Pinexe Systems ODC will allow the company to maintain its core IP development while at the same time driving cost efficiencies and accelerating turnaround times. This is exactly the kind of scalability that is required to support the rapidly growing digital audio and entertainment market.”

About PortalPlayer, Inc.

To meet the growing demand of digital audio-capable entertainment products, leading manufacturers use PortalPlayer’s platforms to design and develop complete product families for the pocket, home and car – from portable jukebox devices to stereo components and systems that can record and playback digital media. PortalPlayer’s platforms are based on a fully customizable and scalable architecture that includes a system-on-chip, firmware, and a PC-based digital media manager application.

PortalPlayer and the PortalPlayer logo are trademarks of PortalPlayer, Inc. All other trademarks or registered trademarks are property of their respective owners.

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