PortalPlayer, Inc. Reports Strong Q1 Revenue and Net Income

Revenue Increases From $44.5 Million in Q1FY05 to $72.3 Million in Q1FY06

SAN JOSE, Calif. May 1, 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 first quarter of fiscal 2006, ended March 31, 2006.

Net revenue for the first quarter of 2006 was $72.3 million, compared with $44.5 million in the first quarter of 2005, and $78.2 million in the fourth quarter of 2005. GAAP net income for the first quarter of 2006 was $6.5 million, or $0.26 per diluted share, based on 25.5 million weighted average shares outstanding and a 51 percent effective GAAP tax rate. GAAP net income in the first quarter of 2005 was $7.8 million, or $0.31 per diluted share, based on 25.0 million weighted average shares outstanding. GAAP net income in the fourth quarter of 2005 was $23.8 million, or $0.92 per diluted share, based on 25.8 million weighted average shares outstanding.

On a non-GAAP basis, which excludes stock-based compensation charges and, for the first time, the amortization of intangibles, as well as the tax effects of those items, net income for the first quarter of 2006 was $10.4 million, or $0.40 per diluted share, based on 25.8 million weighted average shares outstanding. This compares with non-GAAP net income in the first quarter of 2005 of $8.2 million, or $0.33 per diluted share, excluding stock-based compensation charges. Non-GAAP net income in the fourth quarter of 2005 was $15.9 million, or $0.62 per diluted share, which excludes stock-based compensation charges and a benefit of $8.6 million related to the release of a portion of the valuation allowance against deferred tax assets.

"After completing a strong first quarter, we are very disappointed with the product transition setback that we announced on April 19, 2006," said Gary Johnson, president and chief executive officer of PortalPlayer. "Notwithstanding this, we believe the pace of innovation behind our new technologies is accelerating. In the first quarter, we partnered with leading wireless providers to demonstrate Wi-Fi and HSDPA technologies to potential customers, worked with notebook manufacturers to integrate our Preface technology into notebooks with secondary displays, continued to further develop our product portfolio for the personal media player market, and enhanced our innovative product offerings by licensing and acquiring intellectual property.

"The market segments we are targeting are expected to see significant long-term growth and we have made substantial investments in developing technologies to enable highly integrated, feature-rich products to pursue them. Over the past year, we have invested in integrating analog, advanced video and wireless capabilities. Consequently, we are now seeing solid results from our internal testing of various silicon implementations," said Mr. Johnson.

Highlights

• PortalPlayer previously stated its intent to license and purchase technology and intellectual property to help the company continue to build great products, as well as further strengthen its intellectual property position. In the first quarter, the company obtained a five-year license to the patent portfolio of MOSAID Technologies, a developer and licensor of intellectual property. This patent portfolio consists of more than 500 U.S. and international patents. PortalPlayer also purchased 25 patents from MOSAID. The combined transaction amount is approximately $8 million. According to the agreement with MOSAID, PortalPlayer has an exclusive license to grant sublicenses in certain markets. In addition, the company licensed intellectual property from other companies during the quarter.
• PortalPlayer expanded its Taiwan presence to include a new design center. The additional resources will help in the development of the company's Preface technology platform and provide local engineering support for Preface to customers and partners in Taiwan and China.
• PortalPlayer joined forces with CSR PLC, a wireless solutions provider and leader in Bluetooth technology, to bring wireless connectivity to personal media players. With integrated solutions, the two companies expect to enable Wi-Fi technology that simplifies the synchronization of media players with a PC, as well as open up new ways to download and stream content from the Internet. In addition, Bluetooth solutions enable features such as wireless stereo headset connectivity.
• PortalPlayer and Icera, the wireless soft modem company, announced that they are working together to demonstrate a new class of portable multimedia device that delivers an always-connected service, enabling over-the-air browsing and fast download of music and video files through high-speed, cellular broadband networks.

Current Financial Outlook for Second 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 second quarter of 2006 to be in the range of $30 million to $40 million. Operating expenses are expected to be approximately $13.5 million. The effective GAAP tax rate for the second quarter of 2006 is expected to be about 52 percent. GAAP net income/loss per share for the second quarter is expected to be in the range of a loss of $0.03 to an income of $0.05, based on approximately 25.7 million weighted average shares outstanding. Stock-based compensation charges, in accordance with SFAS 123R, are expected to be about $2.4 million, before the effects of tax. Non-GAAP net income, excluding these stock-based compensation charges as well as $350,000 of amortization of our intangibles, and the tax effects for both items, is expected to be in the range of $0.03 to $0.14.

About PortalPlayer

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.