SigmaTel left out of Apple's shuffle replacement plans?

AppleInsider

In a few weeks Apple Computer is expected to unveil an update or replacement for its iPod shuffle digital music player, but current shuffle component suppliers may not be invited to the party.



In a research note released on Tuesday, American Technology Research analyst Shaw Wu said there is "potential risk" that Apple's yet-to-be announced new and improved entry-level iPod will not incorporate components from semiconductor maker, SigmaTel Inc.



The Austin, Texas-based company has been supplying Apple with audio controller chips for the iPod shuffle ever since the it was introduced in January of last year. The chips are shipped to Taipei, Taiwan-based Asustek, which manufacturers the iPod shuffle.



According to Wu, Asustek's business revenues from Apple declined from 11 percent quarter to under 10 percent in the last two quarters. The analyst believes this may also be a sign that SigmaTel's deal with Apple is slowly expiring.



Citing other reason, such as poor sell through of digital players from Creative -- SigmaTel's largest customer -- Wu downgraded SigmaTel shares from 'Hold' to 'Sell,' with a price target of $8.



Shares of SigmaTel traded as high as $45.50 in March of 2005, two months after Apple introduced the iPod shuffle.

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melgross

This is why the ideal situation for a company has always been to attempt to ensure that no customer commands more than 5% of your sales.



It's tough for smaller companies.



A friend used to be head of purchasing for flexable packaging for Nabisco. The suppliers were all small companies. They may have done $5 million a year (this was in the early '70's).



He would be able to demand almost any price from them. Nabisco was most of the business for many of these companies.



I remember when SigmaTel was flying high I ALMOST bought their stock.

jeffdm

I am not in SigmaTel's business, melgross's comments ring true. I am an outsider, but it looks like the component business is pretty tough, I didn't envy them when it was good for them, because I wouldn't want their bad times as part of the package. To survive in this business, it takes constant innovation and an ability to weather the lean times. Surviving is easy when orders are good but things change so quickly that it's important to be prepared. I don't see taking on a big customer as inherently damaging so long as a double dose of caution is taken because they leave easily too.

mark2005

SigmaTel is not an assembler/manufacturer like Asustek, but also a designer/manufacturer of chips. As a designer, they need to constantly be innovating - adding new features, higher quality, or lower cost. They need to know where they add value to the chain.



Because if Apple is leaving them, Apple must've found something better to use from somewhere else (even in-house). Which means SigmaTel didn't have the best value solution. Which may mean they didn't execute, or may mean they didn't know where Apple was headed. And if Apple was a large customer, they needed to know, and they needed to execute.



In contrast, PortalPlayer has hung in there with each iPod iteration. But I'm sure the threat of Intel must weigh heavily on them.

melgross

It's a very difficult business, no matter how you look at it.



Unless you can patent your designs, you're in trouble.



And if someone like Apple comes along and asks you to design a part with certain characteristics, you're also in trouble, because you may not own the design, or at least not the specs.



Then the customer can go somewhere else, and have them do the part. you may not be able to sell the part, or another similar part to another customer, because you're not allowed to use the customers information to make parts for other customers.



This is a BIG problem for design firms. you get locked out of markets because you did design-to-order work for someone, and aren't allowed to use any of the knowledge gained doing that work.