PortalPlayer makes audio processing chips for the MP3 market. Some 90 percent of the company’s business is tied to Apple’s iPod.

“We are reducing Q2 and Q3 EPS estimates as channel checks for NAND flash consumption, as well as other commentary, suggest that Apple's iPod Nano shipments are likely to slow further in Q2, negatively impacting PortalPlayer,” according to a report from Wedbush Morgan Securities, an investment banking firm.

The firm cut its 2006 EPS estimate for PortalPlayer from $2.00 to $1.90, 2007 EPS estimate from $1.90 to $1.80, and share price target from $30 to $27.

A slowdown in iPod sales began to impact the market last month. The share prices of flash memory chip makers last month fell on rumors that demand is softening for the memory type.

Particular concerns centered on an anticipated order for NAND flash from Sony Corp. for its Playstation Portable, which may not materialize and on Apple Computer Inc., which could cut output of its iPod music player in the first quarter of 2006.

Companies affected include Samsung Electronics Co. Ltd., Toshiba Corp. and Hynix Semiconductor Inc.

There is some good news for PortalPlayer, a fabless chip maker. “We have increased confidence that Apple is likely preparing to launch a new iPod with enhanced video capabilities this spring, possibly as early as its 30th Anniversary on April 1,” according to the report from Wedbush Morgan Securities.

“We continue to believe PortalPlayer will retain its socket in the soon-to-be-released Video iPod given Apple's design schedule constraints,” the report said.